Tycoon Li Ka-shing to revamp empire to address valuation discount

[January 09, 2015]  By Yimou Lee and Donny Kwok

HONG KONG (Reuters) - Asia's richest man, Li Ka-shing, is restructuring his business empire to create two listed companies, one focusing on property and the other on telecoms, retail and energy, in a bid to boost their value and attract more investors.

The 86-year-old Hong Kong tycoon built his sprawling empire over more than half a century from a plastic flower business, but has been frustrated that his group's listed companies trade at a discount to the book values of their net assets, a common feature of conglomerates.

"This transaction is a watershed event in our group's history. It is transformational from the point of view of shareholder value," Li said in a statement on Friday.

Li's two largest listed companies are Cheung Kong (Holdings) and Hutchison Whampoa, which both run a wide range of businesses. As on Jan. 7, Cheung Kong, which owns just under half of Hutchison Whampoa, traded at a 23 percent discount, or about HK$87 billion ($11.22 billion), to its book value at the end of June 2014, the statement said.
 

"The issue of holding company discount has puzzled us for a long time, until we thought of a way to resolve it during the second half of last year," Victor Li, executive deputy chairman of Cheung Kong and Hutchison told a news conference when asked why they chose to do the restructuring now.

The proposed reorganisation will put the property assets into a new company, Cheung Kong Property Holdings Ltd, with another, CK Hutchison Holdings Ltd, managing ports, telecoms, retail, energy, aircraft leasing and other businesses. The transaction will increase transparency of the group and give investors direct shareholding in the two companies, the statement said.

Some analysts said Li had timed the reorganisation to tap growing interest in Hong Kong shares from mainland Chinese investors following a recent link-up that allows investors in Shanghai and Hong Kong to trade shares on each other's bourses.

"Right now it should be a good time, particularly when investors are trying to find some high-value investments after the Shanghai-Hong Kong Stock Connect," said Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong.

"Some investors are trying to accumulate shares of Cheung Kong and Hutchison," he added.

As part of the reorganisation, Cheung Kong will ask Hutchison Whampoa shareholders to exchange each share for 0.684 CKH Holdings share, resulting in the cancellation of Hutchison shares.

The reorganisation comes at a time when Li, who has an estimated $33.5 billion net worth, according to Forbes, has been trimming exposure to Hong Kong and buying utility and telecom assets in Europe.

As part of the reorganisation, the Li family trust will boost its stake in Canada-listed Husky Energy to 40.2 percent from 35.6 percent.

HSBC Holdings is the sole financial advisor to the Li group companies.

(Reporting by Yimou Lee and Donny Kwok; Writing by Denny Thomas; Editing by Will Waterman)

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