Li Ka-shing could be further limiting his exposure to the region’s property markets
Hong Kong’s richest man is consolidating his property assets into a single company, as billionaire Li Ka-shing announced on Friday that he is restructuring his biggest holding companies.
In a statement, the investor known in Hong Kong as “Superman” for his deal-making prowess announced that Cheung Kong Holdings is offering $24 billion in stock to buy out Hutchison Whampoa – Li and his family trust own controlling shares of both companies.
The proposed merger would create CK Hutchison, and once the deal is complete the real estate assets of the combined company would be spun off into another new company named Cheung Kong Property, to be listed on the Hong Kong stock exchange.
The restructuring follows an extended sell-down of real estate assets by Li’s companies, and can easily be seen as attempt to hive off exposure to the region’s property markets. Cheung Kong and Hutchison together own more than 60 real estate projects in China, as well as as assets in Hong Kong and Singapore.
After the merger and spin-off CK Hutchison would retain the interests in ports, energy, retail and telecommunications enterprises acquired through the merger of Cheung Kong and Hutchison.
Li Said to Be Looking to the Future
Li, who was recently displaced as Asia’s richest man by Alibaba’s Jack Ma, depicted the reshuffling of his corporate assets as a rationalisation of the company’s structure that would benefit future generations, and the company’s shareholders.
“As a person reaching a certain age, you want the company’s successor and all the executives here to more easily operate and to do well, so it’s not a surprise,” the octogeneranian was quoted as saying in Bloomberg. “I want the company to do well not only today but also in the future. That’s my responsibility.”
Li and his family also pointed to the restructuring as a way to divide assets into more focused companies within the group and to do bring the company’s share value more in line with the value of its assets.
“We’ve been wanting to deal with the holding company discount issue for many years,” Victor Li, Cheung Kong and Hutchison’s deputy chairman and the elder son of Mr. Li was quoted as saying in the Wall Street Journal.
Cheung Kong stated that under its current structure, shares in both companies have been trading at about a 23 percent discount to asset value.
For real estate assets, Cheung Kong and Hutchison had traditionally worked together on acquisitions and disposals with each company typically owning 50 percent of each asset.
Li Ka-shing predicted that, once the restructuring is complete, the new companies will pay higher dividends than had been the case under the old corporate organisation.
Property Assets Spun Off as Market Softens
Among the assets of Cheung Kong Property will be the Cheung Kong Centre in Hong Kong
Once the reorganisation is complete, Cheung Kong Property will only dozens of properties in Asia, primarily in Hong Kong, Singapore and mainland China.
In Hong Kong, Cheung Kong Property will own The Centre in Central, Citicorp Centre in Causeway Bay, and World Wide House in Central as well as many other properties. On the mainland, Li’s companies continue to hold more than 60 projects in over 20 cities, although those most of these are residential developments in second-tier cities.
However, the companies have also been notably selling down their property assets in the region during recent years, and the restructuring can be seen as a way for Li Ka-shing and his family to continue selling down their properties without damaging the value of their other assets.
“Property is something about which investors are very cautious right now,” Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas SA was quoted as telling Bloomberg. “They are spinning it off because they want to take out the lesser-valued assets.”
That view is backed up by the actions of Cheung Kong and Hutchison, as the two holding companies have sold off a number of properties in Hong Kong and China in the last two years.
During 2014, Li’s companies sold a total of five properties in Chongqing, Shanghai, and Nanjing, while his son Richard’s Pacific Century Premium Developments Ltd disposed of a $900 million complex in Beijing.
In 2013, Cheung Kong and Hutchison jointly disposed of a mall in Guangzhou.
The companies also sold off Hong Kong real estate such as during 2013 when Cheung Kong sold off a mall in Hong Kong to a REIT it controlled for $754 million.
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