Billionaire Li Gears Up for Deals After 'Project Diamond'
It was code named “Project Diamond.” And on Friday, after six months of secret negotiations, Hong Kong’s richest man Li Ka-shing unveiled the $24 billion reorganization designed to help expand his sprawling empire through acquisitions.
The 86-year-old billionaire proposed a reshuffle of his two main holding companies, Cheung Kong Holdings and Hutchison Whampoa. If approved by shareholders, the plan would create two new corporations with specific focuses: one for his property portfolio, and the other with assets from ports to retail stores that span more than 50 countries.
The new structure would allow Li more flexibility to invest in new businesses outside of Cheung Kong’s and Hutchison’s traditional areas, said Canning Fok, his long-time deputy.
“We’ll continue to build new businesses and build on what we’ve done,” Fok, group managing director of Hutchison, said at a press briefing late Friday evening. “As we develop our businesses, each of them will become more transparent and investors would be able to value those as they see it more clearly.”
Balance sheet
Investors cheered the move. Cheung Kong jumped as much as 20 percent in early trading on Monday and Hutchison gained 18 percent, giving them a combined market value of about HK$100 billion ($98 billion).
Li, nicknamed “Superman” by Hong Kong’s media for his investing prowess, in the past year made acquisitions in areas ranging from an Australian gas distributor to airplanes. Purchases made through the new company, called CK Hutchison Holdings, would add to existing operations which span the ports, retail, energy, telecommunications and infrastructure sectors.
“This way, the group can better utilize Cheung Kong’s strong balance sheet to facilitate M&A, under the Hutchison umbrella,” said Alfred Lau, a director at Bocom International Holdings Co.
Cheung Kong had cash and near-cash items of $4.27 billion while net debt stood at $670 million at end-June last year, according to data compiled by Bloomberg. Meanwhile, Hutchison had $13.1 billion of cash while net debt reached $17.3 billion.
Hutchison, which owns UK mobile provider Three, is examining options for doing deals in the country, people with knowledge of the matter said in November.
Project diamond
The reorganization started taking shape last summer, when Cheung Kong was considering an acquisition in uncharted territory: aircraft leasing, according to senior executives including Fok. It eventually agreed in November to pay $1.89 billion to buy 45 planes from companies including General Electric’s aviation services unit.
“There’s a need to deploy the capital and when we’ve found a business to put the money to work, which is aircraft leasing, questions started to come up,” said Gerald Ma, Cheung Kong’s head of strategy. “It became clear to us that a decision needed to be made.”
Under the plan, dubbed “Project Diamond,” Cheung Kong will initially offer about $24 billion in stock to buy out Hutchison. CK Hutchison will then spin off its property assets and list them separately on the Hong Kong stock exchange, according to a Jan. 9 filing.
All of the group’s non-property assets, including stakes in Cheung Kong Infrastructure Holdings and the recently acquired aircraft leasing business, will be folded into CK Hutchison.
‘New chapter’
“This opens up a new chapter for the group,” David Ng, a Hong Kong-based analyst at Macquarie Group, said in an e-mail. A cleaner structure will facilitate infrastructure acquisitions abroad and other deals that “lead to more stock catalysts and attractive dividend yield for investors.”
While Cheung Kong is a major developer in Hong Kong, the sector is facing the twin challenges of slowing growth in mainland China and government efforts in Hong Kong to rein in property prices that have hurt transactions in the city.
The proposed reorganization would help remove a “holding company discount” and reduces competition between Cheung Kong and Hutchison, which have at times bid against each other in land acquisitions in mainland China, said Hutchison finance director Frank Sixt.
Li and his family trusts currently own 43 percent of Cheung Kong, which controls 50 percent of Hutchison Whampoa. Following the reorganization, they will have a 30 percent stake in each of the new companies.
Li, who worked as a factory apprentice and built a plant that made plastic flowers in the 1950s, is Hong Kong’s richest man with a net worth of $28.2 billion, according to the Bloomberg Billionaires’ Index.
Bloomberg
Tags: Keywords: