Split decision

Is Li Ka-shing reconfiguring his empire or withdrawing from Hong Kong?

Hutchison Whampoa Chairman Li Ka-shing reacts beside a bottle of Watsons distilled water during a news conference in Hong Kong

86 year-old in break-up

Not many investors dare to bet against Hong Kong’s richest man, Li Ka-shing. “You never question Superman’s acumen to time the market,” warns Cho Yan-chiu, a respected Hong Kong commentator who helped to popularise Li’s superhero nickname.

The examples are numerous. In 2000 Li listed his internet start-up (the IPO was oversubscribed 2,600 times). Very soon afterwards the dotcom bubble burst, indicating that the savvy Li had sold at the top.

More than a decade before that ­– in September 1987 – Li announced a HK$10 billion ($1.3 billion) recapitalisation plan for his listed companies. Again, he had picked the perfect time to tap the market. Hong Kong shares were trading at an all-time high. Less than a month after the fundraising, the market crashed so badly that regulators had to impose a four-day trading halt.

So when the 86 year-old unveiled a new plan to overhaul his two flagship holdings last week, local analysts were soon pondering the meaning behind Li’s asset allocation strategy. Before the restructuring, Li had organised his empire in a linear structure: he controls Cheung Kong, the holding firm of Hutchison Whampoa, which in turn owns the other listed units. But the overhaul sees both Cheung Kong and Hutchison reshuffled into two new entities. The real estate assets held by the two Hong Kong blue chips are to be folded into CK Property. The non-property assets – essentially international businesses that span ports, retail, energy and telecoms – will make up the other new conglomerate, called CK Hutchison.

Singtao Daily says the new entities will become sister firms directly controlled by Li, but the upshot is that the tycoon will cut back his direct exposure to Hong Kong real estate (from a 43% stake in Cheung Kong to a 30% stake in CK Property) while raising his stake in the group’s global operations (from a direct 2.5% share of Hutchison to a 30% stake in CK Hutchison).

That had local media wondering whether Li has turned bearish on the future of Hong Kong’s property market. “When Superman Li decides to sell, you’d better not buy,” Singtao Daily warned. “Li is now cutting his exposure to property. It doesn’t mean the market will crash tomorrow but investors should be very cautious if they want to take Hong Kong real estate as a long term investment.”

As part of the plan Li is also switching his companies’ incorporation away from Hong Kong to the Cayman Islands. This intensified the speculation that the tycoon’s enthusiasm for his adopted home city is waning. The concerns found their way into the mainland Chinese newspapers, with Southern Metropolis Daily noting that Li’s move recalls that of Jardine Matheson, a considerably older conglomerate, which moved its domicile away from Hong Kong in 1984. “The Cayman Islands are British territory. Many critics believe that if the new CK companies run into legal tussles in the future, Hong Kong would have no jurisdiction,” it suggested.

The Global Times waded in too. “Obviously Li is not sending a message that he is fully confident in China,” it thought. It also wondered if the decision was a sign that Hong Kong’s tycoons are finding it more difficult to make money in mainland China, because of the rise of local businessmen such as Alibaba’s Jack Ma and Dalian Wanda’s Wang Jianlin. Li lost the title of Asia’s richest man to Ma after Alibaba’s successful listing in New York last year.

But last week’s restructuring has helped Li get the number one spot back. Investors gave the plan an emphatic thumbs-up – analysts say they consider the structure tidier – with the share price of Cheung Kong climbing nearly 15% on Monday and Hutchison also up. The move increased the pair’s market value by nearly $12 billion, boosting the tycoon’s net worth. This offers another interesting comparison with Jardines. In the trading session following the announcement of its own relocation in 1984, its Hong Kong shares plunged nearly 6%, notes Southern Weekend.

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