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Shirley Yam

Li Ka-shing has once again proven himself as the top dealmaker, killing three birds with one stone.
In a nutshell, the deal is about pouring the assets of Cheung Kong (Holdings) and Hutchison Whampoa into a bowl and then divvying them up into a property and a non-property company.
The official rationale is to eliminate the 23 per cent discount that the Cheung Kong stock has to bear with as a holding company of Hutchison.
A valid reason. Yet, the same could have been achieved by other means. Hutchison could have sold its property business to Cheung Kong for the latter's non-property assets. This could have been followed by a distribution of Hutchison shares held by Cheung Kong to Cheung Kong shareholders.
Such an asset swap would be much less complicated, involving only the approval of the minority shareholders of the two companies.
Instead, the current proposal involves the creation of a holding company that entails the removal of a listed company and a spin-off. That, in turn, requires not just shareholders' approval but also that of the courts.
The question is, why take the long route?
The answer is, an asset swap would not achieve the purpose of moving Li empire's incorporation away from Hong Kong and getting the extra protection as a "foreign company".
It's no news that the new Beijing and Hong Kong leaderships are much less "tycoon-friendly" compared with their predecessors, and Li has been selling assets in Hong Kong and the mainland in the past year.
Under the proposed restructuring, both the non-property and property arms will be incorporated in the Cayman Islands. Li, however, flatly denies this is an exit. "People are free to say whatever they like. The fact is, my companies remain registered and listed in Hong Kong. Over 70 per cent of the newly listed companies in Hong Kong over the past 10 years or so are incorporated in Cayman Islands … It's not about confidence but convenience."
The convenience factor is overstated. It is true a Cayman incorporation offers higher efficiency of restructuring and less restriction on the distribution of reserves.
Both factors are more relevant to loss-making and cash-strapped companies, which, obviously, Cheung Kong and Hutchison are not.

	My companies remain registered and listed in Hong Kong … It's not about confidence but convenience

	Li Ka-shing
It is hard to believe that Li has done what he has done only for the sake of convenience, knowing full well the questions it will raise about his commitment to Hong Kong.
It is no coincidence the presentation material to investors first describes the future property and non-property arms as companies "registered in Hong Kong", then in letters half the font size say they are "Cayman-incorporated" two lines below.
Another magic of the deal is in the share swap ratios, which put Cheung Kong shareholders, including the Li family, at an advantage.
For every Hutchison share, the holder gets only 0.684 share of a to-be-created holding firm that controls Cheung Kong and Hutchison, while every Cheung Kong share will be swapped into one share of this new entity.
Put another way, Hutchison shareholders will get 31 per cent less of the new entity of the future property and non-property arms than their Cheung Kong peers.
To be fair, that is a reflection of the poor performance of the Hutchison stock in the past months, partly caused by low oil prices, and hence the valuation of the Husky Energy stake that Hutchison holds. On the other hand, Cheung Kong has been trading up.
However, to a Hutchison shareholder, the deal means he is selling cheap, at a bad time.
This would have been avoided in an asset swap involving only the valuation of assets, unaffected by Hutchison's underperforming stock price.
As a result of this deal, the Li family will get a 30.15 per cent direct ownership in both the property and non-property arms, instead of an indirect holding of Hutchison through Cheung Kong.
Whether Hutchison shareholders will accept the deal remains to be seen. In the meantime, Li is sweetening things up by promising a higher dividend payout if the deal goes through.
He's good, but you already knew that.
shirley.yam@scmp.com


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How Li Ka-shing killed three birds with one restructuring

Questions have been raised over why Li Ka-shing has taken the long route to restructure his empire. Photo: Bloomberg

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Money Matters | How Li Ka-shing killed three birds with one restructuring