Never too late
Asia’s richest man has embraced a new faith. Li Ka-shing is splitting his empire in two, separating his property assets which are mostly in Hong Kong and China from the rest of the global ports-to-telecom-to-retail conglomerate. The rejig should help to shrink the group’s persistent stock market discount, allowing Li to leverage up the real estate business, and pay higher dividends. It’s a long-overdue acknowledgement that there is value to unlock.
Shareholders in Cheung Kong – Li’s $37 billion holding company – will swap their shares for a new vehicle registered in the Cayman Islands. It will then absorb its 50 percent subsidiary Hutchison Whampoa. The combined group will spin off its property assets, which will be loaded with an additional $7.1 billion of debt. Relocating to the Cayman Islands gives both companies greater flexibility to distribute cash to shareholders.
Li reckons that removing a tier from Cheung Kong’s cascading structure of interlocking subsidiaries will release value. At its closing price on Jan. 9 – before the plan was announced – the company’s market capitalisation was 24 percent below last June’s book value. The simpler structure brings external shareholders into line with the Li family, which has enjoyed the best returns in recent years.
Conspiracy theorists will interpret the restructuring as a move away from the group’s roots in Hong Kong real estate, and lack of confidence in the former colony. Yet Li is hardly selling up. He will remain chairman of both companies, with his son Victor as his deputy, and the family will own 30 percent of each business.
Nevertheless, Li’s belated conversion to shareholder dogma is still a surprise. In more than four decades at the helm of a listed company, the 86-year-old tycoon has shown more interest in keeping a grip on his empire than in maximising its stock market value. He could go further. After the reshuffle, CKH Holding will still own stakes in everything from Singapore-listed Hutchison Port Holdings to Toronto-listed Husky Energy. If Li is serious about unlocking value, there will be further reshuffles to come.