BlackRock picks its battles with Hong Kong protest

G-Resources

07/03/2016 04:09

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are his own.) 
    By Quentin Webb 
    HONG KONG, March 7 (Reuters Breakingviews) - BlackRock is 
picking its battles carefully in Hong Kong. The fund giant is 
staging a rare public campaign against G-Resources  1051.HK , a 
near-$750 million group that wants to ditch mining for finance. 
This latest outbreak of investor assertiveness is welcome. It's 
just a shame that many other firms in the city will remain 
shielded by powerful insiders and docile retail owners. 
    Facing a difficult gold market, G-Resources wants to sell 
its main mine in Indonesia and refocus on lending, stockbroking, 
property and principal investing. It says this radical shift 
will benefit both the company and its shareholders. BlackRock 
counters that the pivot was poorly explained, and doubts that a 
$1 billion warchest can be spent wisely on unfamiliar 
businesses. It is also unhappy that G-Resources is already 
dabbling in securities and property, buying offices and 
car-parking spaces in Hong Kong's Wanchai district. 
    BlackRock's 8 percent-plus stake is small change for a firm 
that manages $4.6 trillion. And strategic drift and 
conglomerate-building are all too common in Hong Kong. What 
makes the campaign noteworthy is that the world's biggest money 
manager rarely speaks out. It prefers to make its case behind 
closed doors, and disdains activist investors as too short-term. 
Having made no headway privately, it has written to other 
G-Resources shareholders and hired proxy advisers to round up 
opposition to the vote due on March 8. 
    This is welcome. More pushback for boards of directors 
should help strengthen Hong Kong's patchy corporate governance. 
BlackRock's intervention follows recent episodes where investors 
blocked a $12 billion buyout by tycoon Li Ka-shing and forced 
electrical retailer Gome  0493.HK  to pay less for assets owned 
by its founder. 
    Still, a little realism is needed. The earlier deals were 
vulnerable to investor opposition because they involved 
connected parties, and so needed overwhelming approval from 
independent shareholders. That's not the situation this time.  
    BlackRock still has a chance at success because top 
shareholder CST Mining  0985.HK  owns less than 17 percent of 
G-Resources. Sadly, many other Hong Kong companies have less 
than 70 percent of their shares in independent hands, and those 
are often held by hard-to-rouse individual investors. That makes 
some battles not worth fighting. 
     
    On Twitter https://twitter.com/qtwebb 
 
     
    CONTEXT NEWS 
    - BlackRock has urged fellow shareholders in G-Resources to 
vote against a planned $775 million-plus sale of the Hong 
Kong-listed group's main asset, Indonesia's Martabe gold mine. 
G-Resources aims to sell Martabe and refocus on money-lending, 
brokerage, property and principal investments. The vote is due 
on March 8. 
    - The buyer is a consortium led by EMR Capital, a private 
equity firm headed by G-Resources Vice Chairman Owen Hegarty. 
Both sides say Hegarty played no role in the deal. The 
consortium, which also includes hedge fund Farallon Capital and 
two Indonesian investors, will pay $130 million more if average 
gold prices exceed $1,500 an ounce for any 12-month period 
before January 2019. 
    - BlackRock said on Feb. 29 that Martabe was a "particularly 
good asset". The world's biggest asset manager added that it 
lacked confidence that sale proceeds would be well used and 
complained of a "startling lack of detail" about future plans. 
"None of the current senior management team appear to have any 
background or experience in the new businesses," it added. 
    - G-Resources did not respond to an emailed request for 
comment. It told the Financial Times on Feb. 29: "We believe we 
have put forward for our shareholders' consideration what is 
best in the interest of G-Resources. All along, our board has 
been striving to create value for G-Resources and hence our 
shareholders." 
    - Shares in G-Resources stood 1.8 percent lower at HK$0.215 
by 1130 in Hong Kong (0330 GMT) on March 7. The stock has risen 
22 percent since Nov. 20, the last trading day before it 
announced the planned Martabe disposal. 
    - BlackRock letter: http://bit.ly/1LzrgQI 
    - BlackRock statement: http://bit.ly/1QsUHRs 
    - G-Resources statement: http://bit.ly/1L1spRg 
    - Reuters: G Resources sells gold mine, to expand in 
financial services   urn:newsml:reuters.com:*:nL3N13I1YY 
 
     
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    - For previous columns by the author, Reuters customers can 
click on  WEBB/   
 
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 (Editing by Peter Thal Larsen and Katrina Hamlin) 
 ((quentin.webb@thomsonreuters.com;)(Reuters 
Messaging:)(quentin.webb.thomsonreuters.com@reuters.net)) 
 
Keywords: BLACKROCK ACTIVISM/BREAKINGVIEWS