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SCMP Reporter

IT is not often that a publicly-listed company can spend almost US$20 million without it being reported.

 When one considers that the company doing the spending is one of Hong Kong's largest and most visible groups, it is all the more remarkable.

 Add to the pot that this company is also being stalked by a potential predator, and it becomes quite unbelievable.

 Yet this is exactly what Hongkong Land has been doing since the beginning of this year.

 Quietly and efficiently, the company has bought back $20 million of its own shares, with the aim, it says, of adding shareholder value by enhancing earnings and assets per share.

 On the face of it, this is an honourable pursuit. It shows the company has a healthy respect for high standards of corporate governance, and it exhibits an eye for a bargain. Each purchase, sometimes amounting to millions of shares, has been struck at rock bottom prices.

 Hongkong Land made it clear several years ago that it would embark on a steady process of acquiring then cancelling a proportion of its issued share capital.

 Nothing wrong with that, it seems. Apart from the fact that in recent days, talk has been growing that there is more to the share buy-backs than meets the eye.

 Hongkong Land's management has only recently taken an interest in buying back excess stock. For several years, it has been renewing a mandate to buy up to 15 per cent of its shares, but at its annual general meeting last month in Hamilton, Bermuda, the mandate was unexpectedly extended to include put warrant repurchase.

 Buy-back activity by the company has also increased dramatically. In 1996, the group acquired and cancelled only 19 million shares at a cost of $43 million, last year it bought back almost 10 times that amount, repurchasing about 4 per cent of its stock at a cost of $253 million.

 In Hongkong Land's defence, such a spike in activity could be deemed natural, given that its shares have been depressed by the Asian turmoil, rendering the company a good opportunity for repurchases.

 But speculation has been growing that by slowly cancelling excess stock, it is also making it increasingly difficult for anyone else to build up stakes in the company.

 Hongkong Land's fear of a takeover is well known. Its elaborate legal status, which domiciles the company in Bermuda and confers on it a custom-made takeover code that provides a built-in alarm system against any hostile bid, is among the most sophisticated in the world.

 When last August Hutchison Whampoa chairman Li Ka-shing announced he had begun building a stake, the company appeared relaxed about its new shareholder, but analysts predicted that privately management had gone on alert to ensure it did not receive further surprises.

 Indeed, when it emerged that apart from Li Ka-shing, tobacco merchant Ho Ying-chie, and his grandson Charles T.K. Ho had also amassed more than 6 per cent of Hongkong Land, some believe panic set in, sparking the furious buy-back activity.

 Last week alone, Hongkong Land spent almost $1 million on a stock buy-back, snapping up 733,000 shares at prices ranging from $1.20 to $1.28.

 By reducing the level of the free float, Hongkong Land is making it difficult for a takeover. The lack of shares and the requirement of the Bermuda Takeover Code that each gain has to be announced, has effectively stymied any bid.

 On the other hand, the attraction of the company is growing brighter by the day. As the owner of some of the best property in Central, it is an asset Mr Li would love to get his hands on, and with property prices having fallen about 40 per cent from its peak, Hongkong Land is, theoretically, becoming cheaper.

 By some estimates property prices are poised to fall a further 50 per cent. If this is the case, Mr Li could be the ideal new owner. Hutchison Whampoa is recognised as being among the strongest companies in the Hang Seng Index with plenty of leverage at its disposal.

London FTSE-100 Close: 6174 Rise: 244.3 points 



Hongkong Land cuts share pile as predator fears grow