Update | Shares in Li Ka-shing’s two main businesses jump after restructuring proposal
Hutchison stock will rise between 9 and 19 per cent “thanks to the unlocking of hidden value embedded under the existing vertical structure”
Shares in Hong Kong tycoon Li Ka-shing’s two principal business operations rose sharply yesterday on Monday after Friday night’s merger announcement.
Cheung Kong closed up 14.7 per cent at HK$143.20 on the news that shareholders would receive a one-for-one share in newly registered CK Hutchison Holdings (CKH), while group subsidiary Hutchison Whampoa hit an intraday high of HK$101 before closing at HK$98.25, up 12.5 per cent and its biggest rise since October 1997.
The benchmark Hang Seng Index closed up 0.45 per cent at 24,026.46 points.
The stock market reaction was in line with analyst expectations and mirrored strong trading in the two firms’ American depository receipts in New York on Friday after the proposed restructuring was announced.
Analysts said the deal would eliminate the existing holding company discount that investors had applied to both firms and help streamline executive decision making.
“Thanks to the unlocking of hidden value embedded under the existing vertical structure”, which had become “increasingly unstable” as the group companies overlapped, Hutchison should rise between 9 per cent and 19 per cent, Nomura analysts wrote.
The new structure could unlock up to HK$95 billion for the group based on estimated 2015 net asset value, and give newly formed CKH more financial flexibility to raise debt and make acquisitions, they said.
BNP Paribas analysts see an initial 27 per cent upside to Cheung Kong’s stock price and expect combined dividends will be greater than the sum of the two firms’ earlier dividends.
Under the proposed merger, still subject to shareholder approval, all non-property assets, including ports, telecommunications, retail, infrastructure and energy, from both firms will be injected into Cayman Islands-based CKH.
As part of the reorganisation, all property businesses, including those overseas, in the two companies will be injected into another new entity, Cheung Kong Property Holdings, which will seek a separate listing on the Hong Kong stock exchange by introduction. CK Property will be one of the largest property companies listed in Hong Kong.
Existing Hutchinson shareholders will receive 0.684 shares in the new venture for every share they now hold.
Hutchison’s credit rating was unaffected by the news, credit rating agencies Fitch and Standard & Poor’s said in separate announcements.
