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  • Oct 23, 2014
  • Updated: 8:16am

Hutchison Whampoa

Hutchison Whampoa is controlled by the Cheung Kong Group, and headed by Li Ka-shing, Asia’s wealthiest man, who has been nicknamed “Superman” because of his investment prowess. Its operations include ports, with property and hotels, retailing telecommunications (Hutchison Telecommunications International) and infrastructure (Cheung Kong Infrastructure).

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DISPOSALS

Li Ka-shing to sell Shanghai property assets worth HK$6 billion

Cheung Kong firms to sell Shanghai holdings worth up to HK$6b, bringing mainland and HK divestments in the past year to about HK$25b

PUBLISHED : Tuesday, 12 August, 2014, 7:29pm
UPDATED : Wednesday, 13 August, 2014, 10:45pm

Li Ka-shing is set to sell Shanghai property assets worth almost HK$6 billion, bringing the value of disposals made by him on the mainland and in Hong Kong since August last year to about HK$25 billion.

The deals, through Li's Hutchison Whampoa and real estate investment trusts he partly owns, are part of a concerted strategy of cutting exposure to real estate and raising funds to deploy elsewhere.

"This is a pretty consistent trend across the group - to me, it's not a coincidence," Danie Schutte, CLSA's deputy head of Asia research, told the South China Morning Post.

"They [Li-led companies] have not purchased any land in Hong Kong or [mainland] China for three years.

"Victor Li talked about it and said they are cashed up and ready to buy, [but] they clearly think prices will come down."

Victor Li Tzar-kuoi is the deputy chairman of Cheung Kong (Holdings) and Li's son.

Schutte said Cheung Kong typically maintained a five to six-year land bank in Hong Kong, but today its land reserves would only last about three to four years.

The company's land bank in the mainland had dropped from 200 million sq ft to 160 million sq ft, he added.

Cheung Kong is the main property arm of the Li group of companies.

Hutchison Harbour Ring, which owns office towers in Shanghai, said in a stock exchange announcement that its parent Hutchison Whampoa was seeking to sell its 71.36 per cent stake in the firm to Shenzhen-listed Oceanwide Holdings for between HK$3.5 billion and HK$3.8 billion.

Meanwhile, ARA Asset Management, a manager of real estate investment trusts part owned by Li, is selling its International Capital Plaza in Shanghai for 1.54 billion yuan (HK$1.94 billion), according to a report in the Beijing Times.

Hutchison Harbour Ring shares jumped 35 per cent yesterday despite the fact that, at the midpoint, the selling price comprised a 12 per cent discount to the firm's pre-announcement equity capitalisation of HK$5.8 billion.

The discrepancy was explained in the announcement, alongside the offer of a special dividend of 20 HK cents per share.

The offer values Hutchison Harbour Ring at 55 HK cents to 59.8 HK cents per share, implying a valuation of 79.8 HK cents at the top.

The stock closed yesterday at 88 HK cents.

Hong Kong developers are well known to time property markets and the disposals suggest to analysts that the Hong Kong and mainland property markets are at a peak, particularly with regards to land prices.

"For the moment, [Cheung Kong has] a land bank and projects to sell. While property prices are still rising, the outlook in three or four years, when various projects are completed, prices may no longer be rising," said Alan Jin, who covers Cheung Kong for Mizuho Securities Asia.

Among recent transactions, Cheung Kong last year sold Kingswood Ginza, a retail shopping mall in Hong Kong, to Fortune Real Estate Investment Trust for a profit of HK$2.7 billion.

In January 2012, the company sold a 70 per cent stake in Sheraton Shenyang Lido Hotel on the mainland, reaping a profit of HK$1 billion.

Through Cheung Kong, the property-based conglomerate he controls, Li owns a 7.84 per cent stake in ARA Asset Management.

The largest shareholder is Singapore-based Straits Trad- ing Co, which owns 20.1 per cent of the company.

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singleline
At the end of 2013,
the total bank assets in China was 148 trillion yuan, 3 times that in 2008,
the market value of bonds was only 26 trillion yuan, double that in 2008,
and the market capitalization of the stock market had just increased by 4%, to 23 trillion yuan.
Obviously, the development of the capital market still lags far behind the needs of the real economy.
The country has still been mainly relying on her banking system, which was o.k. when the country's economic growth-rate was still high (annual double-digit growth).
But when the economy started to slow, many bad-debt problems propped up.
China at present needs to accelerate the development of her capital market.
Doing so, the big enterprises and the listed companies can issue long-term bonds in the bond market to satisfy their needs for long-term funding, and as a result the banks can lend much more to the SMEs and SMiEs at lower interest rates.
singleline
Right now, China’s stock market is mostly dominated by the short-term stock punters, and is relatively speculative.
In many foreign stock markets, the shares are mainly held by the sophisticated institutional investors who tend to engage in value investing by holding the shares for a long time.
Most of them are investing, not speculating.
To develop a sophisticated stock market, China must heavily punish the dishonest participants, because faith or credit is the name of this intertemporal game.
More institutional investors, like the pension funds and insurance companies, should be encouraged to participate in the stock market, so as to deepen this market and make it less speculative.
The annual number of IPOs should not be strictly dictated by the authority.
IPO funding is much more targeted than the present 'targeted' bank loans, and does not increase the leverage of the companies.
Right now, the commercial banks are the biggest investors in the country’s bond market, holding 70% of the bonds.
The social security funds managed by the local governments are now only allowed to invest in bank deposits and government bonds.
More private banks should be set up to better serve the SMEs.
Deposit insurance is also needed to protect the retail depositors and wind down insolvent banks.
The small innovative private companies can also be helped by the business angels, venture capitals, private equities, and stock IPOs.
(****economy.caixin.com/2014-08-13/100716312.html)
singleline
Ultimately, the country’s problem of high cost of capital has to be (partly) solved by the soon-to-be-announced and all-important fiscal reform.
The tax-and-fee-sharing arrangement between the central and local governments has to be adjusted in a way that enables the local governments to have enough monies to do all the jobs properly assigned to them.
Together with much more issuance of long-term municipal bonds, and the removal of the GDP goal, the local officials no longer need to depend heavily on land finance to fund part of their expenditures.
This way, their financing vehicles, indirectly getting loans from the banks, will gradually subside, and so will the country’s shadow banking market.
The banks will then be less susceptible to the problem of rising bad debts.
The stock market will be less adversely affected by the unsatisfactory performance of the banks.
The leverage of the whole economy will increase less quickly than before.
More loans can then be given to the SMEs through the banks, now at much lower interest rates than that prevailing in the previous shadow banking market.
singleline
The property market in the cities will go back to normalcy, rents and land-prices will gradually come down, or increase less quickly.
More farmer workers will go back to the big cities to work there, because the cost of living will now be lower than before.
The Lewisian turning point is more a mirage than a reality.
The persistent problem of labour shortage in those cities will also gradually subside.
Their (minimum) wage rates will no longer rise faster than their productivity growth.
The yuan will then be less overvalued.
Part of the exports tax rebates can then be cancelled, forcing those affected exporters to upgrade their technologies.
Faced with lower costs of production, some China’s industries can spend more money on R&D to try to climb up the value chain.
If successful, their future products will become more competitive both in the domestic and foreign markets.
Some of the workers will be better trained than before.
Much fewer factory owners will keep on speculating in the property market.
The real economy, not the virtual one, will become dominant once again.
singleline
Success breeds success, failure breeds failure.
Our expectations must also be taken into account.
If most people expect the economy will keep on improving, it will probably be self-fulfilling, and will be reflected by a rising stock market.
And vice versa --- suspected weakness, especially by the local people, ensures weakness.
The only thing we have to fear is fear itself.
If the above analysis is not too far from the truth, it means a combination of adjustments has to be made to sustainably lower the country's real cost of caipital.
Those people who think that the PBOC’s targeted expansionary monetary policy alone is the holy grail, and can help lower the country’s high cost of capital, may be proved to be too simple and naïve.
singleline
According to Britain's Lombard Street Research (LSR), China's yuan is perhaps overvalued by as much as 1/3 (even though many China watchers recently claim that the yuan will resume its revaluation in the coming months).
Also, China's property prices in the first-tier cities seem to start to fall from a very high plateau.
Considering these two factors alone, it really makes sense to sell the investments in China, converts the money to another currency, and invests it in other places, like Europe.
Right now in China, many asset prices in terms of US$ are too high relative to other countries --- not justified by China's present not-very-strong economy.
If so, why not make a reverse carry trade --- sell high in China, buy low in Europe or elsewhere ?
cleareye
Finally someone with intelligence contributes.
singleline
If the country's present capital control is fully relaxed (this seems to be suggested by some of the LSR people), there will be a massive amount of capital flight out of the country.
The Chinese people are not stupid.
This is not a good time to be loyal to one's own country.
The yuan will have to devaluate massively.
China's prices of imported energy and food products in terms of yuan will greatly increase, propping up the country's inflation rate.
In response, the PBOC, to stem the capital flight and accelerating inflation, will have to raise massively the domestic interest rates.
What's been happening recently in some of the EM countries will happen once again in China.
The property and stock markets, and the antique and other asset markets, will all drop like a ball.
(Chinese readers: ****tttmoney.blog.sohu.com/304852472.html)
The previous carry trades will rewind, adding further pressure on the depreciating yuan.
Many debts in the country will start to default.
The banks will be greatly hurt, and may experience bank runs due to a drop in confidence.
Piles of enterprises will go bankrupt, and the domestic unemployment rate will also greatly prop up, causing social unrest in the country.
The situation will be made much worse if the US Feb 'coincidentally' starts raising the US interest rates at the same time.
singleline
China will have to sell part of her US and Euro bonds cheaply in the foreign markets to cope with the foreigners' redemption of their US dollars and Euros, sustaining the rise in foreign interest rates.
Most of China's rich foreign reserves, being used by the PBOC to defend the yuan's exchange rate, may disappear as a result.
The country may even need to seek the help of the Brick Bank, or AIIB, if not the IMF.
Meanwhile, almost all the foreign newspapers will join the symphony to short China in unison.
Of course the foreign hedge-fund people won't forget to short China's stock market as well, using the various instruments newly introduced in the country, and so adding insult to China's injury.
They'll probably also short the stock market in Hong Kong at the same time, as in 1998.
Their shorting jobs may be facilitated by the Shanghai-HongKong through-train arrangement.
The foreigners will go to China later to buy the very cheap assets on sale there.
And then it will be business as usual.
The yuan will resume its gradual revaluation in the subsequent years.
The whole story will be repeated once again one day in the future.
Not only a person, but a country as well, can be robbed by other people.
Most EM countries can tell China that this is the case, because they, and China, have to keep on dancing with the wolves, or sleeping with the enemies.
This is more so if the Asian countries don't hang together.
As a result, they'll be hanged separately by the West.
singleline
China will find that the South China Sea and the DiaoYu (Senkaku) Islands are no longer peaceful.
There'll be much more unrests in XinJiang and even Tibet.
Xi and Li will also find that they are less authoritative than before.
It’ll be the best of times for the foreigners.
It’ll be the worst of times for the Chinese.
Now, or before this worst-case scenario, is also the best time for the Chinese people to sell their antiques and buy gold.
For it’s a truth almost universally acknowledged that,
in the best of times, buy antiques (or other collections);
in the worst of times, buy gold (provided that the government doesn't force you to return the gold to her, not at the market price, but at the price she specifies.).
盛勢古董(收藏),
亂勢黃金.
The above is not just a thought experiment --- this 'perfect storm' may all be realized, especially if China hasn't developed a sophisticated capital market in her own country (a deep bond market in particular).
Afterall, the US can't avoid solving her own debt problem in one way or another.
That's the horror of a Currency War.
It will be as detrimental to China's real economy as Franklin Roosevelt's silver purchase program in 1935, perhaps more so.
(****www.jstor.org/discover/10.2307/2138806?uid=3738176&uid=2129&uid=2&uid=70&uid=4&sid=21104052894861)
Whether China (and Hong Kong) is well prepared for it I have no idea.

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