Mighty Li takes stock of em­pire

A year on from go­ing through a sweep­ing cor­po­rate over­haul, the sprawl­ing busi­ness em­pire of HK ty­coon Li Ka-shing is poised to break new ground in growth, the oc­ca­sional hic­cup not­with­stand­ing. re­ports.

China Daily (Canada) - - HONG KONG -

Li Ka-shing, Hong Kong’s rich­est man and re­doubtable busi­ness demigod, had kicked off 2015 by an­nounc­ing in Jan­uary the big­gest over­haul of his $100 bil­lion em­pire, by cre­at­ing two new Hong Konglisted com­pa­nies to stream­line cor­po­rate struc­ture and en­hance share­holder value.

And so a new hold­ing com­pany, CK Hutchi­son Hold­ings (CKH Hold­ings), was cre­ated the fol­low­ing March to merge the busi­nesses of Che­ung Kong (Hold­ings) — the real es­tate arm con­trolled by Li — and Hutchi­son Wham­poa, the sub­sidiary con­glom­er­ate con­trolled by Che­ung Kong (Hold­ings) , which was delisted in May last year af­ter 37 years of trad­ing on the Hong Kong stock mar­ket.

CKH Hold­ings, reg­is­tered in the Cay­man Is­lands and listed in Hong Kong, is a con­glom­er­ate with a mar­ket cap­i­tal­iza­tion of HK$403 bil­lion, ac­cord­ing to Bloomberg es­ti­mates. Its busi­ness is spread over 50 coun­tries and in­cludes all non-prop­erty as­sets of the two merged com­pa­nies, fo­cus­ing on the tele­coms, in­fra­struc­ture, en­ergy, retail and port-re­lated ser­vices sec­tors.

The real es­tate busi­nesses of the two com­pa­nies were spun off to cre­ate an­other new en­tity, Che­ung Kong Prop­erty Hold­ings (CK Prop­erty), which listed in June last year.

CK Prop­erty is one of the top de­vel­op­ers in Hong Kong with a land bank of 170 mil­lion square feet (15.8 mil­lion square me­ters) and the largest ho­tel owner-op­er­a­tor listed in the SAR. It also owns the city’s se­cond-largest rental prop­erty port­fo­lio.

The Fi­nan­cial Times in Jan­uary last year said the re­vamp was ex­pected to add enough value to the shares in the two new groups to re­store Li to his po­si­tion as Asia’s rich­est man, a dis­tinc­tion he lost in 2014.

“Che­ung Kong and Hutchi­son Wham­poa have grown sub­stan­tially in size and scale over the past decade. The re­or­ga­ni­za­tion will place the com­pa­nies in an even stronger po­si­tion for fu­ture growth and de­vel­op­ment,” Li said in the press re­lease on Jan 9, 2015, ex­plain­ing the cor­po­rate re­vamp plan as chair­man of Che­ung Kong and Hutchi­son Wham­poa.

A 70-page fil­ing with the Hong Kong stock ex­change said the move aimed to cre­ate share­holder value in al­low­ing all group as­sets to be fully re­flected and re­move the “lay­ered hold­ing struc­ture” be­tween Che­ung Kong and Hutchi­son Wham­poa.

How­ever, mar­ket whis­pers are that Li wishes to pro­tect his em­pire from any eco­nomic volatil­ity in Hong Kong and main­land. And lo­cal ty­coons ap­pear to be tak­ing his lead, sell­ing main­land busi­ness as­sets and im­ple­ment­ing an or­ga­ni­za­tional over­haul of their hold­ings as a pre­cau­tion.

Cheng Yu-tung, the New World Group pa­tri­arch, sold main­land prop­er­ties worth 20.4 bil­lion yuan ($3.2 bil­lion) through his prop­erty arm New World China Land (NWCL) to Guanzhou-based de­vel­oper Ever­grande Real Es­tate Group in De­cem­ber. That came af­ter Cheng had al­ready off­loaded NWCL as­sets in se­cond- and thirdtier main­land cities to Ever­grande for 13.5 bil­lion yuan in all.

Cheng is bank­ing on main­land com­pa­nies’ prop­erty-buy­ing spree on ei­ther side of the bor­der to off­load his real es­tate port­fo­lios to get cash back and un­lock in­vest­ment value faster.

Cheng has also trans­ferred his per­sonal stakes in six Hong Konglisted com­pa­nies val­ued at about HK$3.8 bil­lion to a fam­ily-held hold­ing com­pany, al­most four years af­ter declar­ing his re­tire­ment from the group in 2012.

“In­ject­ing Cheng’s per­sonal in­vest­ments into the fam­ily hold­ing com­pany may pave the way for per­sonal es­tate man­age­ment,” said Ter­ence Chong Tai-le­ung, ex­ec­u­tive di­rec­tor of the Chi­nese Univer­sity of Hong Kong’s In­sti­tute of Global Eco­nom­ics and Fi­nance.

As for the re­or­ga­ni­za­tion of Li’s em­pire early last year, in­vest­ment bank an­a­lysts gen­er­ally hailed the cor­po­rate re­vamp, say­ing it would ben­e­fit both new busi­ness en­ti­ties and in­vestors. Af­ter the re­vamp, CKH Hold­ings will ben­e­fit from en­hanced liq­uid­ity and CK Prop­erty will have a clean cap­i­tal struc­ture and a sep­a­rate fundrais­ing plat­form as a pure prop­erty play.

Vin­cent Lam Siu-ye­ung, man­ag­ing di­rec­tor and chief in­vest­ment of­fi­cer at VL As­set Man­age­ment, noted: “The share price dis­count of a hold­ing com­pany (Che­ung Kong) is gen­er­ally 15 to 25 per­cent or more. Chang­ing that struc­ture should re­move the dis­count.”

Gold­man Sachs noted that the over­haul can be­stow greater busi­ness trans­parency, bet­ter cap­i­tal al­lo­ca­tion, align­ing of man­age­ment re­spon­si­bil­i­ties and a clearer de­mar­ca­tion of the group’s prop­erty and non-prop­erty divi­sions.

Retail and in­sti­tu­tional in­vestors will also ben­e­fit from the re­or­ga­ni­za­tion, in­vest­ment banks reck­oned, as they all gave the com­pany a “buy” rat­ing at the year-end. “There are three ben­e­fits to share­hold­ers, in­clud­ing re­mov­ing the hold­ing com­pany dis­count, op­ti­miz­ing cap­i­tal struc­tures and rais­ing div­i­dends — al­ways pop­u­lar with in­vestors,” said Paul Louie, head of prop­erty sec­tor equity re­search Asia ex Ja­pan at Bar­clays.

Gold­man Sachs agrees, say­ing the cor­po­rate re­struc­tur­ing will im­prove the two new busi­ness com­pa­nies’ cash flow and the abil­ity to in­crease div­i­dends for in­vestors. The con­glom­er­ate’s share price can reach to HK$126, given there is a 31 per­cent dis­count be­tween the com­pany share price and its net as­set value.

“The con­glom­er­ate is a value cre­ator as it grips ev­ery mar­ket op­por­tu­nity to spin off its as­sets or en­ter into merger and ac­qui­si­tion deals to cre­ate busi­ness value. We as­sign it a “buy” rat­ing with a tar­get share price of HK$123.5,” bro­ker­age DBS Vick­ers said in its re­search re­port in De­cem­ber, adding the group may spin off retail as­sets to raise share­holder value.

In Au­gust, CKH Hold­ings an­nounced its first in­terim re­sult. The new con­glom­er­ate posted a re­cur­ring net profit af­ter tax of HK$14.9 bil­lion for the six months ended June 2015, 46 per­cent more than the Hutchi­son Wham­poa re­sult dur­ing the same pe­riod in 2014. On Dec 31, CKH Hold­ings closed at HK$104.6 per share, a surge of 39.4 per­cent for the whole year of 2015. It closed on Thurs­day at HK$100.4.

How­ever, Li’s cor­po­rate re­vamp plan has not been un­chal­lenged. Ef­forts to merge Che­ung Kong In­fra­struc­ture Hold­ings (CKI) with Power As­sets Hold­ings (PAH) col­lapsed last Novem­ber af­ter In­sti­tu­tional Share­holder Ser­vices, an in­flu­en­tial proxy ad­vi­sory firm, rec­om­mended that in­vestors re­ject the $12.3 bil­lion buy­out of­fer, say­ing CKI should give a bet­ter share of­fer deal to PAH share­hold­ers.

The pro­posed merger would give CKI ac­cess to $8.7 bil­lion in cash and equiv­a­lents held by PAH to push for more ag­gres­sive over­seas in­fra­struc­ture as­set ac­qui­si­tions and con­sol­i­date the 11 projects where both CKI and PAH have in­ter­ests. It will also max­i­mize the value of co-owned as­sets and sup­port a po­ten­tial re-rat­ing of CKI.

Con­tact the writer at oswald@chi­nadai­lyhk.com

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