HPH Trust takes HK$19 billion “goodwill” write-down on Hong Kong terminal assets
“A write-down on goodwill is easier to process than on tangible assets, because it is a relative subjective measurement” - analyst
Hutchison Port Holdings Trust (HPH Trust) yesterday took a HK$19 billion “goodwill” impairment write-down of its Hong Kong terminal assets, amid mounting concerns that multi-billionaire Li Ka-shing, who ultimately controls the outfit, is gradually retreating from his home base of Hong Kong.
HPH Trust, the Hutchison Whampoa subsidiary that owns Pearl River Delta container ports, said the one-off, non-cash HK$19 billion impairment was recognised against the goodwill of a “cash-generating unit in Hong Kong as it is adversely impacted by the uncertainties in the global economy and demand, the continuing challenging trading environment faced by the Hong Kong operations and challenging labour cost pressure.”
Singapore-listed HPH Trust confirmed to the South China Morning Post that the write-down was made to Hong Kong International Terminals, and “to a lesser extent, the rest of the HK assets.” HPH Trust was spun off from Hutchison Port Holdings, the world’s biggest port operator by throughput.
The charges resulted in an HK$18.6 billion net loss in 2014 for HPH Trust, a stark reversal compared to the HK$1.67 billion profit it posted in 2013.
HPH Trust’s Hong Kong assets comprise a 100 per cent stake in Hong Kong International Terminals (HIT), 50 per cent in Cosco-HIT Terminals, and 40 per cent in Asia Container Terminals, all of which are located in Kwai Tsing port, Hong Kong.
The HK$19 billion charge represents 88 per cent of goodwill, an intangible asset item, in HPH Trust’s Hong Kong assets at the end of 2013.
“A write-down on goodwill is easier to process than on tangible assets, because it is a relative subjective measurement,” said an analyst who declined to be named.
Rising labour costs and declining throughput have put mounting pressure on Hong Kong container port, the world’s fourth-busiest. A 40-day labour strike in the spring of 2013 disrupted the operations at HIT, and was ended with a 9.8 per cent pay raise to the dockers.
HPH Trust reported a 6 per cent rise in throughput last year. Its Hong Kong terminals altogether handled 5 per cent more, outperforming a 0.3 per cent drop in the entire Hong Kong port last year.
Excluding the goodwill write-down, HPH Trust recorded HK$390million profit last year, 16.5 per cent higher than 2013.
HPH Trust, which went public in the Singapore stock exchange in 2011, features an uncommon business trust structure, which is owned by unit-holders, and managed by Hutchison Port Holdings Management Pte Ltd, a wholly owned subsidiary of Hutchison Whampoa. A unit represents an undivided interest in the trust.
HPH Trust was committed to stable and regular dividend payout in its listing prospectus, regardless of profits from port operations. The firm has maintained more than 7 per cent dividend payout ratio since the IPO, more than double the level of its peers such as China Merchants Holdings (International) and Cosco Pacific, both of which are Hong Kong-listed port companies.
In order to honour the commitment that requires the firm to pay out cash flow from operations net of capital expenditure, HPH Trust has tried to defer capital expenditure or spend down some cash reserves on its balance sheet since its listing, said Jon Windham, an analyst at Barclays Capital. “So the [dividend payout ratio] could be insulated from short-term operational frustration.”
Last month, Li surprised the market by a sweeping revamp of his business empires, Cheung Kong (Holdings) and Hutchison Whampoa, and change corporate registration to the Cayman Islands, rekindling rampant talk he is divesting from Hong Kong and the mainland, an allegation that Li has repeatedly denied.
