Hutchison sells ports division stake for US$4.3b
Deal gives Singapore firm 20pc interest in conglomerate's most profitable arm
Hutchison Whampoa pocketed a profit of more than HK$24 billion yesterday after selling 20 per cent of its ports division to Singapore's state-owned PSA International, casting in stone the future partnership of the world's two largest terminal operators.
Li Ka-shing's flagship, cashing in on skyrocketing valuations for international port firms created by February's sale of Peninsular and Oriental Navigation (P&O), sold the stake in Hutchison Port Holdings (HPH), its most profitable division, to PSA for US$4.38 billion.
'The terms of this transaction reflect the quality and value of our privately held ports business, setting an attractive benchmark for the group's remaining interests in the business, which we will continue to control and manage,' Hutchison's group managing director, Canning Fok Kin-ning, said last night.
The deal gives PSA a stake in all 42 of Hutchison's port assets in 20 countries and raises the Singapore firm's interest in Hongkong International Terminals (HIT), Kwai Chung's dominant operator, to just over 30 per cent, according to sources close to the deal.
The acquisitive PSA in June paid Hutchison US$925 million for 20 per cent of HIT and 10 per cent of Cosco-HIT, a smaller operator.
A PSA source said last night the deal had found its genesis in the company's failed #3.54 billion ($49 billion) bid for P&O in February and took very little time to close.
'The opportunity came when we chased the P&O deal,' the source said from Singapore last night. 'It became pretty obvious we had money to spend. We found very little overlap [in port assets], which was exactly what we were looking for. It happened quickly because we are getting very good at performing due diligence.'
The deal, signed in Hong Kong by Mr Fok and PSA International chairman Fock Siew Wah, raises suspicions Hutchison is again selling off prime assets to counter the big debts it has run up trying to establish its 3G phone network in Europe.
Last year, Hutchison made an operating loss of $36.28 billion from its global 3G businesses, improving only slightly from a $38.45 billion loss a year earlier.
Mr Li has said he is under no pressure to sell any of its established businesses, but the $24 billion profit from yesterday's deal is certain to appease shareholders.
Analysts at US investment bank Morgan Stanley, which advised Hutchison on the deal, have valued Mr Li's ports empire at 19.3 times this year's earnings.
The almost US$4.4 billion price tag exacted a heavy premium from PSA - 33.4 times earnings - prompting one analyst to caution against seeing the deal as a sell-off of Hutchison's crown jewels to feed mounting 3G debts.
'What they get is a huge exceptional gain while retaining full control of the assets,' the analyst said. 'They will also hold out hope that the market will revalue their remaining stake at a higher level.'
PSA's Mr Fock seemed unconcerned by the premium his firm paid yesterday - roughly in line with the premium Dubai's DP World paid for P&O in February - saying it would continue to invest in 'opportunities that make good commercial business sense for us'.
PSA will receive two seats on the HPH board as part of the deal.
'This is the biggest investment PSA has made and it reflects our confidence in these port assets, many of which are in high-volume and high-growth locations,' Mr Fock said. 'We believe this investment will generate good long-term value for PSA and allows us to benefit from a well-diversified spread of assets globally.'
Aside from assets in Europe, the deal gives PSA a stake in Yantian, Guangdong's premier deep-water port, and the second phase of Shanghai's Yangshan project.