The Li clan will deal their way out of value trap

CK Asset Holdings

20/12/2023 12:36

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Una Galani
       MUMBAI, Dec 20 (Reuters Breakingviews) - Li Ka-shing,
Asia’s original tycoon, converted to shareholder religion nearly
a decade ago when he carved up his Hong Kong-based empire.
Though investors supported the deal, they have rapidly lost
faith in the company as Sino-American tensions rise. Solving the
value conundrum will be a top priority for his son Victor Li in
2024.
    The elder Li split his empire in two in 2015 with one part,
CK Hutchison  0001.HK , including its global ports, telecoms,
retail and energy businesses and the other, later renamed CK
Asset  1113.HK , holding its China-focused property portfolio.
    Yet the move has failed to unlock any hidden value. CK
Hutchison has delivered a negative 29% return to shareholders
since announcing the split, trailing the negative 5% of Hong
Kong’s benchmark Hang Seng Index  .HSI . The company’s $20
billion market capitalisation is now a 70% discount to its book
value, compared to par in 2016, LSEG estimates show. It trades
at a paltry 5 times expected 2024 earnings.
    The executive team led by Victor Li has hardly been sitting
still. CK Hutchison has struck telecoms mergers in the United
Kingdom, Indonesia and Australia, and rejigged its energy assets
in Canada. Shareholders are unmoved, though. Meanwhile,
Singaporean sovereign fund Temasek has appeared restless to
unlock some of the $10 billion it has invested in CK Hutchison’s
AS Watson retail business and the conglomerate’s port
subsidiaries.
    The company’s Hong Kong listing is part of the problem:
global investors are out of love with Greater China equities.
Indeed, some interpreted Li’s 2015 rejig as signalling a lack of
confidence in the Asian hub. Shareholders are also nervous about
the waning influence of Hong Kong’s tycoons as China tightens
its grip on the city.
    One option would be for CK Hutchison to shift its primary
listing to another exchange in Europe or the United States. The
group generates 80% of its revenue outside of Greater China. Yet
turning its back on Hong Kong would risk a broader backlash.
    An alternative would be for the Li clan to use their 30%
shareholding in CK Hutchison to take it private with the help of
a private equity group before breaking it up. The company has
shown it’s willing to surrender control, accepting a junior
position in a merger of its Three mobile telecoms unit in the
United Kingdom with rival Vodafone  VOD.L . It will take more
bold dealmaking to unlock value at the parent company.
    - This is a Breakingviews prediction for 2024. To see more
of our predictions, click here.
    Follow @ugalani on Twitter

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Graphic: Li Ka-shing’s empire is heavily discounted     https://tmsnrt.rs/3NdgWRZ
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 (Editing by Peter Thal Larsen and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  GALANI/   
una.galani@thomsonreuters.com;  Reuters Messaging:
una.galani.thomsonreuters.com@reuters.net))