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Ugland House in the Cayman Islands, registration office for thousands of global companies there. Li Ka-shing, Asia's richest man, plans to use the area to complete the restructuring of his conglomerate in the Caribbean resort and famous tax haven. Photo: AP

New | Hong Kong still competitive despite Li Ka-shing’s departure for Cayman Islands

“Compared with Hong Kong, Cayman has more tax free and flexible regulations for overseas companies to incorporate there. As such, it is cheaper and easier to carry out restructuring as a Cayman incorporated company than those in Hong Kong”

Li Ka-shing

Billionaire Li Ka-shings’ decision to pitch his tent in the Cayman Islands because it is a more “convenient” place to set up his new firms has had the effect of stoking the question whether Hong Kong has lost its allure as an easy place to do international business.

Hong Kong Securities Association chairman Jeffrey Chan Lap-tak said while it is true the Caymans is a place where it is more convenient to incorporate a company, it does not mean Hong Kong cannot compete with the Caribbean islands known more as a tax haven for the wealthy and the infamous.

“Compared with Hong Kong, Cayman has more tax free and flexible regulations for overseas companies to incorporate there. As such, it is cheaper and easier to carry out restructuring as a Cayman incorporated company than those in Hong Kong,” Chan said.

“This is why over the past 10 years, a majority of Hong Kong listed companies are incorporated in the Caymans. But this does not hurt the competitiveness of Hong Kong as companies are still listing here. It is more important where they list than where they incorporate.”

Li, the richest man in Asia and chairman of blue chips Cheung Kong (Holdings) and Hutchison Whampoa, surprised the market last Friday when he announced the restructuring of the two flagship firms by turning them into two new entities. One will hold all his property assets while the other contains the rest. Both outfits will be incorporated in the Caymans instead of Hong Kong.

Li said he was not losing confidence in Hong Kong but just “following the trend” since more than 75 per cent of companies that have listed in Hong Kong in the past decade or so have incorporated in the Caymans, including a number of state-owned enterprises.

A Nomura report said the two firms’ incorporation in the Caymans is “necessary to facilitate the restructuring since, as explained in the announcement, the spin-off of CK Property would utilise a significant portion of Cheung Kong’s distributable reserves under Hong Kong regulations. By contrast, the Cayman company law permits distributions out of profits and out of the share premium account.”

Sun Hung Kai Financial executive director Joseph Tong Tang said Hong Kong has no need to change its regulations or taxes to compete with the Caymans.

“The Caymans do not have a stock market. This is why it does not charge stamp duty and that saves a company carry out a restructuring there. But Hong Kong has a big stock market and stamp duty income is an important source of funds for the city. There is no way for Hong Kong to abandon stamp duty or other taxes to compete with the Caymans for the company incorporation here,” he said.

“As long as the Cheung Kong Group is still doing business here and lists in the local market, this proves that Hong Kong is still competitive,” Tong said.

Stephen Hui, chairman and chief executive of Luk Fook Financial Services, said Hong Kong does not need to change its rules to attract companies to incorporate here, but it should review its listing requirements to compete with other cities.

The city lost the listing of e-commerce giant Alibaba to the US last year due to a dispute on dual-share structures.

“We have to review our listing rules. If we can offer sufficient protection to investors, we would consider allowing more flexible shareholder structures to attract more companies to come to list here,’ Hui said.

“Losing out to New York in the Alibaba listing is something we have to review to see if our rules have been not flexible enough. If nothing is done, we may eventually loset out to Shanghai and other cities in the future,” Hui said.

 

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