Li Ka-shing pledges US$300m support
Hong Kong's richest man, Li Ka-shing, has pledged US$300 million of his own cash to help HSBC Holdings' mammoth rights issue go off smoothly.
In an important show of support, a spokesman for Mr Li yesterday confirmed he was a sub-underwriter to the US$18.3 billion deal.
The underwriters for the issue, JP Morgan Cazenove and Goldman Sachs, have in the past two days assembled a group of more than 100 junior underwriters who promised to absorb any stock that could not be sold in the fundraising.
Mr Li (right) is one of four tycoons - including Henderson Land Development's Lee Shau-kee, New World Development's Cheng Yu-tung and Chinese Estates Holdings' Joseph Lau Luen-hung - who are taking part as sub-underwriters.
The move is not purely altruistic. If the tycoons are left with unsold stock at HK$28 per share, they could profit in years to come. HSBC has offered regular investors five shares at HK$28 each for every 12 they already own. If the cash call is not fully subscribed, the tycoons will receive extra discounted shares without having to buy any new shares at full price.
But they still risk HSBC shares falling below HK$28 after the fundraising. The stock closed down 18.79 per cent at HK$46.25 yesterday.
Mr Li's spokesman said his financial pledge underlined his confidence in HSBC.
The bank's annual net profit plunged 70 per cent to US$5.73 billion after it wrote down the value of its United States subprime lender Household Financial Corp. Activist investor Knight Vinke has claimed HSBC could lose a further US$34 billion at Household as borrowers default on home and car loans.
Stephen Vines, the author of several books about Hong Kong's financial markets, said Mr Li could be putting loyalty before potential profit.
'Li Ka-shing builds strong networks around his companies. What may not be immediately profitable for him is something he could view as good for the long-term interests of his business relationships.'
He certainly has much to thank HSBC for.
In the late 1970s, the bank recognised Mr Li as a talented entrepreneur whose custom would replace that of the fading British hongs, and lavished support on him.
In 1979, HSBC handed him control of Hutchison Whampoa. Hutchison had collapsed into the bank's arms after over-borrowing. Instead of giving a hong such as Jardine Matheson first refusal, HSBC sold Hutchison to Mr Li in an uncontested bid process.
Separately, it has emerged that JP Morgan and Goldman Sachs are charging HSBC US$500 million, 2.75 per cent of the fundraising value, as their underwriting fee. This is 50 per cent more than banks charged to underwrite cash calls last year.
