Li & Fung Group is to privatise Integrated Distribution Services Group, its logistics service division.
Shares of both companies were suspended yesterday pending the release of an announcement regarding the proposed privatisation, according to a statement on the Hong Kong Exchanges and Clearing website.
Analysts believe the main reason for the privatisation is to reduce operating costs.
IDS, which has been listed on the Hong Kong bourse since 2004, provides logistics and distribution for Li & Fung. It had a market value of HK$5 billion based on Monday's closing price, while its parent had a market value of HK$143.8 billion.
The costs of gaining approval from minority shareholders for large transactions such as acquisitions, given the small turnover of IDS, might be greater than the benefits Li & Fung could get from having a separate company listed, said Kenny Tang Sing-hing, an executive director at Redford Asset Management.
'Li & Fung would also have to make sure it complies with the listing rules whenever there are any potential connected transactions between the two companies,' he said.
The trading company has set itself a US$1 billion core operating profit target and also aims to boost its turnover to US$20 billion by December 31 this year.
