HONG KONG—Asia’s richest person, Li Ka-shing , is reorganizing his empire into two companies, separating his Hong Kong property assets from his internationally focused conglomerate, which includes businesses as diverse as ports and telecommunications.
Mr. Li, 86 years old, controls two major companies listed in Hong Kong, Cheung Kong (Holdings) Ltd. and its affiliate, Hutchison Whampoa Ltd. , that have a combined market capitalization of roughly 312 billion Hong Kong dollars (US$US40 billion) and globally employ more than 280,000 people. He said Friday that the real-estate assets of both Cheung Kong and Hutchison will be carved out into a new company listed in Hong Kong, CK Property.
The remaining assets of both companies, which include ports in 26 countries, mobile-telecom operations and a stake in Canadian oil companyHusky Energy Inc., will be listed separately as CKH Holdings. Both listings will be done by introduction, meaning that no funds will be raised.
The company said in a written statement that reorganizing the companies will create shareholder value through the elimination of a “holding company discount.” Hutchison is currently 49.97 per cent-owned by Cheung Kong. Mr. Li said Friday that he was confident the group will pay higher dividends to shareholders after the deal is completed during the year’s first half.
Cheung Kong said its current structure where it and Hutchison own real-estate operations means its market capitalization is at a 23 per cent discount, or a discount of about HK$US87 billion, to its book value of HK$US379 billion. The two companies currently have joint stakes in some Chinese real-estate assets, as well as hotels in Hong Kong and China.
“We’ve been wanting to deal with the holding-company-discount issue for many years,” said Victor Li, Cheung Kong and Hutchison’s deputy chairman and elder son of Mr. Li.
“I am happy our senior executives came up with this restructuring idea” in recent months, he said.
In the proposed arrangement, Mr. Li and his family trust will hold 30.15 per cent of both CKH Holdings and CK Property. Currently, the octogenarian and his trust own 43.42 per cent of Cheung Kong. They also own an additional 2.52 per cent in Hutchison apart from the stake Cheung Kong owns.
Cheung Kong Property shareholders will receive one CKH Holdings share for every one Cheung Kong Property share, while Hutchison investors will receive 0.684 CKH Holdings share for every one Hutchison share, according to the filing.
Cheung Kong Property is raising HK$US55 billion of debt, which it will then transfer to CKH Holdings as part of the transaction. The infusion of cash into the operating business could give Mr. Li more financial firepower to cut deals abroad.
CKH Holdings will own 3 Group PLC, which operates mobile-phone services in the U.K. and other parts of Europe, after the deal closes. The U.K. mobile-phone market is in a period of transition. BT Group PLC entered exclusive talks to buy British mobile operator EE in a nearly US$US20 billion deal, putting added pressure on 3 Group as the U.K. mobile-phone market consolidates.
Investors might find the property assets are more attractive on a stand-alone basis. Some investors view them as a higher-yielding substitute for fixed-income. With interest rates remaining stubbornly low, CK Property could find more investors drawn to it as it increases its payout.
“I expect the shares of both companies will go up on Monday as the proposed restructuring can enhance the values of their existing businesses,” said William Lo, portfolio manager at Ample Capital Ltd. in Hong Kong. Ample owns shares in Hutchsion.
The new CKH Holdings will be an internationally focused company, with assets in more than 50 countries. It will become Husky’s largest shareholder and have stakes in the ParknShop supermarkets in Hong Kong, drugstores in the U.K. and continental Europe, telecom assets, ports and acquisitions in Europe made during the past few years. The acquisitions in Europe include Northumbrian Water and Wales & West Utilities in the U.K., as well as a HK$US20 billion bet on aircraft-leasing assets.
In contrast, CK Property will be mainly focused in Hong Kong, where Mr. Li’s group is one of the city’s top developers. Hong Kong has posted record home-price gains in recent years and is one of the world’s most expensive cities. CK Property also has property assets in China, including some listed real-estate-investment trusts.