Aborted property acquisition points to power shift at Li Ka-shing controlled companies

A rift among two listed firms controlled by Hong Kong’s richest man Li Ka-shing is deepening after a HK$1.87 billion property deal collapsed Wednesday, raising speculation that a new generation of Li-family leadership is beginning to assert itself in strategic decision making, overriding the old guard.

A plan by Prosperity Real Estate Investment Trust (Prosperity Reit) to acquire a commercial property in Kwun Tong for HK$1.87 billion was abandoned after its substantial shareholder, Chueng Kong Property Holdings, voted against the proposal at an extraordinary general meeting on Wednesday.

The move by CK Property to oppose the acquisition suggests some internal conflict among the Li-family companies.

ARA Asset Management (Prosperity) which manages Prosperity Reit, is chaired by Justin Chui Kwok-hung, who is also executive director at CK Property.

CK Property owns a 18.98 per cent stake in Prosperity Reit.

“CK Property’s high profile opposition to its sister firm’s acquisition is rare during the Li Ka-shing era. It cannot help but raise the question whether CK Property under the reins of Victor Li intends to show a new corporate management,” Prudential Brokerage associate director Alvin Cheung Chi-wan said.

In May, 2012, Li Ka-shing appointed his elder son Victor Li to take the helm at his companies Cheung Kong Holdings, now renamed as CK Property, and Hutchison Whampoa, now Cheung Kong Hutchison Holdings.The plan was a rare move by a Hong Kong tycoon to lay out a succession path.

Prosperity Reit said in a stock exchange filing that the motion to purchase the property was defeated as 61.33 per cent of unit holders voted against the deal at the EGM on Wednesday.

“The reit will not proceed with the acquisition,” it said in a statement.

Chui joined CK Property in 1997 and has been an executive director since 2000, heading real estate sales, marketing and property management teams.

CK Property sent a letter to the Prosperity Reit stating that “they do not intend to vote in favour of the acquisition at the EGM”. CK Property’s decision was revealed in a stock exchange filing two weeks after Prosperity Reit’s announcement of the deal.

CK Property said its decision was based on “the terms of the share purchase agreement, gearing ratio of Prosperity Reit immediately following the acquisition and certain performance data in respect of the target property”.

The HK$1.87 billion deal was to be financed by a bank loan, according to Prosperity Reit. Upon completion of the deal, the gearing ratio would increase to 37.1 per cent from 26.5 per cent, the reit said.

Insiders said unit holders cast doubt on the deal owing to the high price for the 14-year-old building, Kwun Tong View, which generated a 3 per cent yield per year.

Net property rental income for the six months was HK$25.63 million. Occupancy rate for the office portion was 85.9 per cent, while fully let for retail and parking spaces.

A shareholder who gave his surname as Cheung said he voted against the deal, noting that unit holders raised questions if the income was sustainable once majority leases would expire in 2019.

“The deal will add financial burden if interest rates hike at the end of the year,” he said.

In share trading on Wednesday, Prosperity Reit closed unchanged at HK$3.37, while CK Property fell 0.6 per cent to close at HK$54.75.

There were 304 million shares or 61.33 per cent voted against the deal at the EGM on Wednesday, according to Prosperity announcement to the stock exchange.” The reit will not proceed with the acquisition,” it said