Where’s a decent superhero when you need one?
That was one response to news that Hong Kong conglomerate Hutchison Whampoa will sell the majority of its interest in its Pearl River Delta ports – primarily Hong Kong and Yantian (east of Shenzhen) – to investors through a trust structure established in Singapore.
Hutchison’s decision is clearly a coup for the Lion City. Bloomberg estimates that the sale could raise $6 billion, more than all of last year’s IPOs in Singapore put together.
But Hong Kong is less enthralled by the thought of its core port assets going under the hammer in its southeast Asian rival.
In recent years, Hong Kong’s maritime status has been evolving. Growth of its container trade has slowed relative to its mainland cousins to the north. But industry bosses are sanguine, arguing that a declining market share is inevitable as other Chinese ports develop as gateways for emerging export hubs.
Instead, the city’s maritime future has been mapped out more in terms of providing shipping services in legal, financial and management-related skills across the region. Hence a little of the irritation that Singapore gets first bite at selling some of Hutchison’s assets.
Still, Tim Huxley, chief executive of Hong Kong-based ship owner Wah Kwong, isn’t especially perturbed by the news. “They’re listing in Singapore because Hong Kong rules don’t allow the same type of business trust set-up here. All the management seems set to stay in Hong Kong.”
For others, the surprise is more that Hutchison’s chairman Li Ka-shing should give his blessing to the deal. Famously, Li spent his early years in Hong Kong selling plastic flowers, after crossing the border as a refugee in 1940. He went on to build his superhero reputation as the city’s most revered businessman, and his personal story is often viewed as synonomous with Hong Kong’s own commercial ascent.
Such sentimentality is naïve – and clearly not in keeping with a commercial nous that has made Li into one of Asia’s richest men. But why sell up now? One theory is that Hutchison might see the proposed IPO as a chance to tap the market before its operations are hit by tighter monetary policy and slower growth within the Chinese economy. Indeed, Li has long been famed for his ability to ‘sell at the top’.
But Canning Fok, Hutchison’s managing director, stressed that he did not believe its ports growth in Guangdong province – the “largest trading hub in the world” – had peaked. Hutchison also said that funds raised through the IPO would be used to finance further projects in the Pearl River Delta.
The bigger picture: both Singapore and Hong Kong trailed Shanghai as the world’s busiest container port in 2010, with the Shanghai government announcing earlier this month that its own port had taken number one spot in handling 29.05 million 20-foot equivalent units (or 500,000 more TEUs than Singapore).
In fact, most of Asia’s container ports had an excellent 2010, boomeranging back from the declines of the year before. China led the charge, say HSBC analysts Parash Jain and Mark Webb, with throughput up by 18%. This year HSBC forecasts Chinese container volumes will grow more slowly at 11%. However, increases in tariffs (items like berthing fees and terminal handling charges) ought to boost profits for the key port operators, like China Merchants and COSCO Pacific. HSBC expects margin increases in Hutchison’s Pearl River Delta backyard too, even though it says it’s where capacity is growing fastest and competition between operators is greatest.
Fortunately, there is still some room for higher fees, with Chinese ports charging rates nearly half those of places like Hong Kong and Singapore.
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