A group of companies controlled by Li Ka-shing is buying Dutch waste management firm AVR Afvalverwerking for HK$9.7 billion, Li's second investment in a waste treatment firm this year.
Cheung Kong Infrastructure (CKI) and Cheung Kong (Holdings) will each take a 35 per cent stake, while Power Assets will own a 20 per cent stake and Li Ka Shing Foundation 10 per cent.
CKI and Power Assets plan to finance the deal with 40 per cent debt and 60 per cent equity and have an internal rate of return on equity target of 12.5 to 13 per cent, JP Morgan analyst Elaine Wu wrote, citing the management of the consortium.
"Assuming a 12 per cent return on equity, we estimate earnings per share for CKI will have upside of 2 per cent for the financial year 2014, and 1 per cent for [Power Assets]. We believe they will likely seek to acquire more assets in the [European Union] in future," Wu said.
Alfred Lau, a property analyst at Bocom International, said the deal was not a sign of a shift in Cheung Kong's strategy.
"CKI is always forming alliances with Cheung Kong and other group members to bid for overseas assets. I don't see Cheung Kong's participation as a sign of the developer slowing down its investment in Hong Kong property," Lau said.
Last year, Cheung Kong spent nearly HK$10 billion on replenishing its land bank in the city, he said.
CKI group managing director Kam Hing-lam said: "The acquisition of AVR will see us investing in a leading waste management company in Europe, possessing the largest EfW plant capacity in the continent. With waste treatment being an imminent issue in most places around the world, we see good growth potential in this business."
AVR's revenue streams are stable, with long-term contracts in place for processing waste as well as for the energy generated.
Investors gave a vote of confidence to the Dutch deal yesterday. Shares of CKI rose 2.99 per cent to close at HK$53.45, Cheung Kong jumped 3.72 per cent to HK$108.60, and Power Assets climbed 2.96 per cent to HK$69.55.
The Hang Seng Index closed 1.22 per cent higher.
"CKI is making good inroads in the area of waste management," Kam said. "In the United Kingdom, Northumbrian Water is one of the leading companies treating waste water and sludge in the country. In New Zealand, EnviroWaste is one of the leading waste management companies in the country and operates the largest landfill there."
The AVR acquisition is subject to a Dutch Central Works Council consultation and approval under EU merger laws. Completion of the deal is expected in the third quarter of the year.
The acquisition of AVR is the second waste treatment investment that CKI has participated in this year, following the HK$3.2 billion purchase of EnviroWaste in January.