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Denise Tsang

Some 14 years after the handover of Hong Kong's sovereignty, tycoon Li Ka-shing's Cheung Kong Infrastructure Holdings (CKI) is choosing to park its investments with the city's former ruler - and with Britain's former colonies.
Swimming against a tide of foreign capital pouring into the mainland, the tycoon's infrastructure flagship has executed an about turn since it went public in 1996 as a pure Chinese infrastructure play.
It has since expanded from a portfolio of toll roads and power plants on the mainland and a cement business in Hong Kong into a water, gas and electricity empire in Australia, New Zealand, Canada and the United Kingdom.
And the trend is gathering pace.
CKI managing director Kam Hing-lam said the group preferred countries which were formerly British colonies, and the UK itself.
'We are familiar with the regulated regimes under British rule,' he said at the announcement of the GBP2.41 billion (HK$30.91 billion) offer for water utility Northumbrian Water  on Tuesday. 'Regulated businesses provide a stable return, but it won't be exorbitant.'
The completion of the Northumbrian deal would see the value of CKI's portfolio in the UK rise 62.5 per cent to HK$65 billion.
A regulated utility serving a population of 4.5 million in England's northeast and southeast, Northumbrian Water will provide predictable revenue growth in the next five years after the British government approved tariff rises. 
A source who has been involved in previous CKI acquisitions, said regulated businesses offered maximum predictability in income and return, and minimum risk from policy changes. 
'But the trade-off is that the return won't be huge,' he said. 'Looking from a broader perspective, CKI's stable return strategy mitigates risks on other parts of the Cheung Kong empire, which may be more aggressive in other areas of investments.'
Citibank analyst Pierre Lau  estimated that CKI's large acquisitions such as the Northumbrian deal and the power grid firm, UK Power Networks, could yield 'a high single-digit' return. CKI and affiliated companies paid GBP1.4 billion for UK Power Networks last October.
The UK portfolio, which consists largely of UK Power Networks, helped CKI almost double its net profit to HK$3.98 billion in the first six months of this year from HK$2.02 billion a year ago.
Samsung Securities' head of utilities research, Gary Chiu Wing-fai,  estimated that the UK portfolio accounted for 32 per cent of the group's total valuation of HK$122.49 billion, while its bread and butter business, Power Assets Holdings, formerly Hongkong Electric Holdings, accounted for 41 per cent of the total.
'CKI is patient in waiting for the right time and the right target,' the source said. 'When market prices are demanding or the assets are not attractive enough, the company builds its financial muscle.'
In 2007, CKI was relatively quiet in terms of acquisitions as its chairman Victor Li Tzar-kuoi  complained  about soaring asset prices.
However, 2007 also saw CKI's war chest swell to a record HK$11 billion.
In 2007, it sealed only one deal, buying a 4.75 per cent interest in Southern Water,  which supplies water and treats sewage in the south of England. Southern Water as a whole was worth GBP4.19 billion at the time.  
Lau of Citibank said Europe, under the shadow of the sovereign debt crisis, would provide opportunities.
He said European companies sought to sell assets to refinance businesses, while governments pursued privatisation and unwound positions in state-owned assets to ease debt and financial deficits.
Back in the 1990s, Australia was a prime example, when the states of Victoria and South Australia put utilities up for sale to cut  deficits. In the three years to 2002, CKI teamed up with associate Power Assets Holdings, formerly Hongkong Electric Holdings, to take over three power grid companies, ETSA Utilities,  Powercor  and CitiPower,  for a combined HK$33 billion.
CKI shares fell by 85 HK cents, or 1.83 per cent to close at HK$45.45 yesterday.
CKI TIMELINE
1996: Cheung Kong Infrastructure lists on the Hong Kong stock exchange as a spin-off unit of Cheung Kong (Holdings).  
In Australia
1999: CKI and associate Power Assets Holdings each buy a 50 per cent stake in ETSA Utilities for a total of A$3.4 billion (HK$16.8 billion).
2000: CKI and Power Assets each buy a 50 per cent stake in Powercor for a total of A$2.31 billion.
2002: CKI and Power Assets each buy a 50 per cent stake in CitiPower for A$1.15 billion. 
2005: CKI and Power Assets sell a 49 per cent stake each in ETSA, Powercor and CitiPower to Spark Infrastructure Group, which in turn lists as an infrastructure fund on the Australian stock exchange. CKI owns 8.5 per cent of Spark and acts as a manager of the fund.  
In New Zealand
2008: CKI and Power Assets each buy 50 per cent of Wellington Electricity for a total of NZ$785 million (HK$4.79 billion).  
In Canada
2008: CKI and Power Assets each buy 50 per cent of Stanley Power for a total of C$213.3 million (HK$1.34 billion).
2011: CKI and Power Assets raise their stakes in Meridian Co-generation power station from 24.995 per cent to 100 per cent for C$91.4 million.  
In China
2009: CKI sells its entire 45 per cent stake in three power plants in Zhuhai and Jilinto Power Assets for HK$5.68 billion.  
In Britain
2004: CKI buys Cambridge Water for GBP51.37 million (HK$717.7 million), but sells in July for about GBP45.9 million.
2005: A CKI-led consortium buys 100 per cent of Northern Gas Networks for GBP1.4 billion.
2007: CKI buys a 4.75 per cent stake in Southern Water.
2010: CKI and Power Assets each buy a 50 per cent stake in Seabank Power for GBP211.7 million.
2010: CKI and Power Assets buy a combined 80 per cent in UK Power Networks for HK$70 billion.
2011: On August 2 a CKI-led consortium offers to take over Northumbrian Water for GBP2.41 billion.



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