(Bloomberg) -- HKBN Ltd. is attracting interest from private equity firm PAG, people familiar with the matter said, setting up a potential bidding war with I Squared Capital for the Hong Kong broadband provider.

PAG is doing preliminary work including analyzing the company and sounding out sources of financing, the people said, asking not to be identified as the information is confidential. Potential suitors may seek to team up with HKBN management in a buyout, the people said.

Others including telecommunications firms in the region and investment funds could also explore bids for HKBN, the people said. Valuation remains a significant hurdles to any transaction, they added. HKBN had long-term debt of about HK$10.9 billion ($1.4 billion) as of Aug. 31, according to its latest annual report.

Deliberations are ongoing and the buyout firm could decide against making an offer, the people said. Representatives for HKBN and PAG declined to comment.

Shares of HKBN extended gains on Wednesday after the Bloomberg News report, rising as much as 7.7% in their largest increase in two weeks. The stock was 5.9% higher at the close.

Earlier this month, HKBN confirmed a Bloomberg News report that I Squared had expressed interest in a possible offer for the Hong Kong telecommunications provider through HGC Global Communications Ltd. A bid could value the firm at more than $1 billion, people familiar with the matter have said. HKBN plans to engage in further discussions with I Squared and hasn’t formed any view about the potential bid nor any agreement, it said in a statement.

A potential sale was put on hold last year as prospective buyers including KKR & Co. and PAG expressed concerns over valuation, people familiar with the matter said at the time.

HKBN offers broadband internet services to residential and corporate customers in the city. It also provides other enterprise telecom solutions, runs data centers and offers Wi-Fi connectivity. Its substantial shareholders include buyout firms TPG Inc. and MBK Partners as well as Singapore’s GIC Pte and the Canada Pension Plan Investment Board.

--With assistance from Shirley Zhao.

(Updates with HKBN’s long-term debt in third paragraph.)

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