M&A

Continental drift

Media asks why Li Ka-shing prefers Europe

HUTCHISON-EARNINGS/

Divesting in Hong Kong: Li

Last August, Li Ka-shing assured the Hong Kong press that he would never give up on business in the city. “I came to Hong Kong in 1940 and I have a very special attachment to the place. I definitely will never withdraw my investments in Hong Kong,” Asia’s richest man insisted. “I will keep investing in Hong Kong because I love this city.”

A year later, the 85 year-old billionaire seems to have had a change of mind.

His conglomerate, Hutchison Whampoa, has put the supermarket chain ParknShop up for sale in a deal some analysts say could fetch $4 billion (see WiC203) and last week it was reported that eight bidders – including private equity firm TPG Group, state-owned China Resources Enterprise (which may bid using its new joint venture with Tesco) and Walmart – have expressed interest in acquiring the chain.

While most multinationals have been rushing to expand their China businesses, Li has been reorientating his group towards Europe, a contrarian move given the EU’s current doldrums. In the first half of this year revenues generated from mainland China were just 11%, while sales in Europe made up 43% of the total. Hong Kong itself contrbuted 15%.

In the past three years, Li’s two holding companies – Hutchison and Cheung Kong (Holdings) – have invested over $18 billion in Europe. This year alone Hutchison has agreed or closed five deals worth more than $4 billion – the majority in infrastructure investments ranging from water-treatment and gas distribution businesses in the UK to telecommunications assets throughout Europe.

The UK, in fact, seems to be Li’s top choice of investment destination. Cheung Kong is among the UK’s largest foreign investors, supplying gas to a quarter of the population, as well as distributing electricity to 7.8 million Britons. It also owns Northumbrian Water which serves 4.5 million customers and likewise Southern Water Services (2.4 million consumers). Additionally Hutchison operates a mobile phone network and a port.

At last year’s interim results press conference, Li explained his rationale: “We understand the situation in Europe and I believe the businesses [we bought] will have growth momentum in five years’ time.”

But why not invest more in China? To be fair, Li poured millions of dollars into Chinese infrastructure projects in the 1990s. Not only did he control the ports of Shanghai and Shenzhen, he also held stakes in toll roads and power plants around the country. But he subsequently offloaded many of these assets and reinvested in a water, gas and electricity empire in Australia, New Zealand, Canada and the UK.

Why would a Chinese entrepreneur not be more focused on his homeland? In spite of Li’s top-level connections in China he may have grown disenchanted with some of the vagaries of doing business there. For example, media speculated that in 2000 the Ministry of Transport, which regulates shipping in China, became concerned about Li’s influence, instructing several coastal cities to limit the role of Hutchison.

Li’s decision to sell ParknShop also has analysts wondering if he is going cold on Hong Kong. But Li has always been an asset trader and it looks like a good time to sell. On a relative value basis Hong Kong appears expensive while many assets in the EU are attractively priced, owing to depressed economic conditions.

Still, it hasn’t been a particularly happy year for Li in the territory. First off, he fell out with the Hong Kong government over a controversial property transaction that involved the sale of hotel rooms (see WiC183 for details). After the government threatened legal action Li was forced to back down.

Li then faced more flak when Hutchison Port (a subsidiary of Hutchison Whampoa) was caught up in a strike by dock workers about pay. For the first time in his career, Li found his headquarters besieged by protesters carrying derogatory placards, some picturing him as a vampire. Hutchison Whampoa then won a court injunction barring strikers from their building.

In the wake of these incidents, Li may feel less of an emotional bond for his business interests in Hong Kong than in the past – which may explain why he is minded to sell at the right price…


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