Hutchison Whampoa has 25 billion reasons to sell assets now
Li's decision on Thursday to offload the bulk of his stake in Hong Kong Terminal 8 West by selling 60 per cent of the container terminal in Kwai Chung for HK$2.47 billion to two mainland shipping conglomerates was part of a string of asset sales expected this year, some analysts said.
The curtain was lifted on Li's asset divestment strategy in January when his energy flagship, Power Assets, spun off its regulated electricity business in the city - Hongkong Electric Investments - as a trust in an initial public offering that raked in one-off gains of HK$52 billion.
Last month, Li's trusted lieutenant and Hutchison Whampoa managing director Canning Fok Kin-ning said health and beauty retailer AS Watson, the conglomerate's cash cow, would seek to go public in Hong Kong this year.
The market has been abuzz with rumours since October that Li was pulling back from Hong Kong, triggered by the planned sale of his ParknShop supermarket chain. That plan was subsequently abandoned, having now become part of AS Watson's proposed listing.
"His asset sales so far reflect a lack of confidence in Asia-Pacific's prospects," said Lam Pun-lee, an economist and former associate professor at the School of Accounting and Finance in Hong Kong Polytechnic University.
"Sale proceeds can be redeployed in Europe, where there are more investment opportunities, or used to reduce debts as an interest rate rise cycle is returning next year."
Credit Suisse analyst Karim Salamatian values Hutchison's portfolio at HK$201 billion, or US$25 billion, which spans retail, telecommunications, real estate and hotels, ports and energy.
"After seven years of investments outpacing disposals and the discount-to-net-asset value widening to near-record highs, Hutchison has US$25 billion reasons why now is the time to start monetising the value that has been created," he said.
He added that Hutchison's investments had outpaced disposals by 1.5 to 1 over the past seven years and that has been weighing on the firm's valuation, which is at an average 31 per cent discount to net asset value.
The crown jewel in the portfolio was AS Watson, accounting for 72 per cent of the HK$47.32 estimated value per share, Salamatian said.
Fok, while meeting the press at Hutchison's results announcement last month, cited analysts' estimated valuation of AS Watson at HK$195 billion, or HK$50 per share, compared with the HK$15 it is believed to contribute to the HK$107 share price of Hutchison.
AS Watson accounted for 36 per cent of Hutchison's revenue of HK$412.93 billion last year. Telecommunications unit 3 Group Europe contributed 15 per cent and its oil division, Husky Energy, 14 per cent.
Some analysts say the proceeds from asset sales could be used to acquire technology firms and utilities in Europe. More importantly, they shore up Hutchison's cash pile to tackle debts. Li said at the press conference that "interest rates will not be low forever".
Hutchison lowered its net-debt-to-capital ratio to 20 per cent last year from 29.7 per cent in 2009. It kept 84 per cent of its liquid assets in cash or cash equivalents at the end of last year and the rest split equally between listed equity securities and treasury debts.
A spokesman for Hutchison Ports Holdings Trust said the HK$2.47 billion proceeds from the sale of a 40 per cent stake in the Kwai Chung container terminal to Cosco Pacific and a 20 per cent interest to China Shipping Terminal Development would be used as working capital. The sale comes a year after the port unit bought its 80 per cent stake from DP World.
Shares in Hutchison Whampoa dropped 1.74 per cent to HK$107.10 yesterday, while its parent, Li's property flagship Cheung Kong, was down 1.3 per cent to HK$120.80. The Hang Seng Index ended 1 per cent lower at 21,539.49 points.