Li Ka-shing to offload more Hong Kong assets for Europe telecom purchases

Tycoon could amass more than HK$100 billion by spinning off assets in city, including Hongkong Electric, Watsons and ParknShop

PUBLISHED : Thursday, 03 October, 2013, 12:00am
UPDATED : Thursday, 03 October, 2013, 7:43am

Li Ka-shing could raise more than HK$100 billion by spinning off Hongkong Electric and Watsons to fund a spending spree on beaten down telecommunications businesses in debt-ridden Europe - his favoured hunting ground since 2011.

Investment bankers said Li's sights were set on Europe, where a prolonged debt crisis had thrashed valuations for many prize acquisitions, leaving them vulnerable to takeover.

Hutchison's European retail, infrastructure and telecoms operations saw double-digit year-on-year growth in operating profits in the first half of this year, according to analysts at brokerage CLSA, highlighting the growth potential sought by Li in return for cashing out of mature, slower-growing businesses in Hong Kong.

Li's Hutchison Whampoa operation has spent roughly US$4 billion on four major telecoms transactions in Europe since the start of last year, according to data from Dealogic analysing the biggest deals the firm has been involved in since 1995.

Hutchison owns mobile network operations in Italy, Britain, Denmark, Sweden, Austria, Ireland and Australia. It clinched a deal to buy Spanish group Telefonica's O2 Irish mobile business for €780 million (HK$8.1 billion) in June, and in January closed a €1.3 billion purchase of wireless carrier Orange Austria.

Deal talks with Telecom Italia fell through in July, but market sources said Hutchison had continued to ferret out deals that could push consolidation in Europe's telecommunications market while helping expand the firm's operations.

The increasing demand for wireless broadband services and the economic importance of further spectrum development are the key themes to Hutchison's growth in the region, where high-speed mobile services are desperately lagging behind other developed markets, a mergers and acquisitions banker from a European bank said.

In a move to gather the financial ammunition for takeovers, Hutchison Whampoa has decided to make a slew of asset disposals in Hong Kong and on the mainland. Market sources said the latest plan was a listing of its A.S. Watson Group to raise as much as HK$78 billion.

That comes on top of plans to spin off its local electricity business - Hongkong Electric - from Power Assets Holdings in the hope of raising about HK$38 billion through a business trust unit by the end of the year. It is also looking to offload its ParknShop supermarket chain in a deal that could raise another HK$30 billion in fresh capital.

Li has also put buildings in Shanghai, Guangzhou and Shenzhen up for sale.

Li said in July that he would boost his telecommunications market share in Europe and seek acquisition targets after a slowing of home sales in Hong Kong amid government cooling measures.

UBS said in a research note yesterday that the fresh proceeds could halve Hutchison's net gearing to between 20 and 25 per cent.

Shares of Hutchison surged 3.3 per cent yesterday to a six-year high of HK$95.95.