Sphere
#37
2015
05
>>
CK Hutchison Holdings Limited
(2)
(CK
Hutchison) and the property firm Cheung
Kong Property Holdings Limited (CK
Property), both to be incorporated in the
Cayman Islands and listed in Hong Kong.
The Rationale
While markets reacted to the ‘new’ news
by driving the shares of both firms to fresh
highs, many saw obvious benefits in a
long awaited and logical reorganisation.
“This reorganisation is far from a surprise
and has long been discussed,” Andrew
Lawrence, an analyst with CIMB Group
Holdings Bhd, wrote in a research note
on 12 January. “It will make for a cleaner
corporate structure...”
(3)
.
Even famously fierce defenders of minority
shareholder rights, like Hong Kong’s David
Webb, were in favour. “What they are
doing is a step in the right direction for
transparency and removing conflicts of
interest.”
(4)
Analysts were not lacking for good reasons
for the move.
“Project Diamond”
The project, in the works since last summer,
was code named “Project Diamond”
(5)
. The
word ‘diamond’ is from the Greek
ἀδάμας
(adámas), meaning unbreakable. However,
a diamond can be cut, polished and
properly set to reveal its true value. Indeed,
Nomura analysts found treasure in “the
unlocking of hidden value embedded in the
existing vertical structure.”
(6)
Vincent Lam, Managing Director and
Chief Investment Officer of VL Asset
Management Limited, opined that
the “share price discount of a holding
company is generally 15 to 25 per cent or
more.”
(7)
Changing that structure should
remove the discount.
Paul Louie, Head of Property Sector Asia,
Ex-Japan, Equity Research at Barclays
Asia, cited three benefits to shareholders,
including removing the holding company
discount, optimisation of capital structures
and raising dividends—always popular
with investors.
(8)
Goldman Sachs took note of not only
economic but also strategic benefits. In
a note to clients, they forecast “greater
business transparency, better allocation
of capital, alignment of management
responsibilities and a clearer demarcation
of the group’s property and non-property
divisions.” Improved cash flow and
ability to increase dividends were also on
Goldman’s radar.
(9)
The Wall Street Journal
saw a defensive
move against the potential for the US
Federal Reserve Bank to raise interest
rates, slowing profits derived from real
estate holdings around the world. The
move would protect Cheung Kong from
such moves—and leave it cash-rich, well-
positioned to invest in European and other
global assets.
(10)
Chairman Li Ka-shing explains some of
the thinking behind the reorganisation,
“Cheung Kong and Hutchison have
grown substantially in size and scale
over the past decade. The reorganisation
will place the companies in an even
stronger position for future growth and
development.”
The final arrangements will take some time
as shareholders must be consulted about
the moves and regulators satisfied that
all proper procedures are being diligently
observed.
The future is bright
“This opens up a new chapter for the
group,” according to David Ng, a Hong
Kong-based analyst at Macquarie Group.
(5)
The markets agreed with HWL’s senior
leadership that the move was a natural and
welcome progression to allow two of the
world’s most dynamic conglomerates to
plan for a strong future that looks bright for
their investors, clients and staff.
O
f the many superlatives
used by breathless financial
analysts in the days
following the announcement
of the reorganisation of
Cheung Kong and HWL, the venerable
and respected
Financial Times
seems to
have encapsulated the move in one word:
“Masterstroke”
(1)
.
In an announcement that took the markets
by storm, “investors cheer[ed] Li’s move
to redraw his empire” (from the same
Financial Times
article). The decision to
merge the two firms and then spin off their
property arms into a second independent
company was warmly welcomed by the
markets. The main new firm will be named
1.
Investors cheer Li’s move to redraw his empire
Jennifer Hughes,
Financial Times Asia,
13 January
2015, P. 14.
2. CK Hutchison was approved by Cheung Kong
shareholders 99.7 per cent in favour and listed on
18 March 2015.
3.
Li retakes Asia’s richest person crown
Bloomberg,
China Daily,
13 January 2015, P. 17.
4.
Investors cheer Li’s business revamp
Benjamin Robertson and Sandy Li,
South China Morning
Post,
13 January 2015, B1.
5.
Billionaire Li gears up for deals after ‘Project Diamond’
Vinicy Chan,
Bloomberg,
11 January 2015.
6.
Shares in Li firms jump after plans for restructuring
Benjamin Robertson and Peggy Sito,
South China Morning
Post,
13 January 2015, A1.
7.
Li Ka-shing launches sweeping revamp on corporate
empire
Ya Shi Zhang,
Xinhua News Agency,
11 January 2015.
8.
Li Ka-shing flag flutters on heels of restructuring
Celia Chen,
China Daily,
13 January 2015, P. 8.
9.
Greater transparency in Li Ka-shing empire
restructuring
KLH,
Dow Jones Newswire,
12 January 2015.
10.
Richest person in Asia is building up his defenses
Abheek Bhattacharya,
The Wall Street Journal Asia,
12 January 2015, P.32.
