China offers escape hatch for Hong Kong tycoons

HKBN

29/11/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own. Refiles to fix grammar in second
paragraph.)
    By Chan Ka Sing
       HONG KONG, Nov 29 (Reuters Breakingviews) - Chinese
firms are dialing up their interest in Hong Kong. The $200
billion China Mobile  600941.SS  has offered to buy broadband
provider HKBN  1310.HK ; separately, it is in talks to buy
commercial property in the city too, according to Bloomberg. As
other mainland giants take advantage of beaten-down valuations,
Hong Kong tycoons could benefit.
    State-owned China Mobile may be the world's biggest carrier
by subscribers, but it has a tiny presence outside its home
market. In 2005, it acquired a small mobile operator in Hong
Kong but has largely kept a low profile since. That is about to
change: a takeover of HKBN, which has a market value of $770
million, would give it more than a one-third share in the local
broadband market.
    The company's mooted interest in snapping up commercial
property also looks shrewd amid slumping real estate prices in
the city. Others may follow suit: state-owned conglomerate China
Resources Land  1109.HK  is in talks to buy a popular shopping
mall from the embattled New World Development  0017.HK  led by
the Cheng clan, local media reported.
    The prospective buyers may be heeding Beijing's calls for
deeper integration among southern Chinese metropolises as part
of an ambitious Greater Bay Area initiative that links cities in
Guangdong province with Macau and Hong Kong. Last month, Qi Bin,
currently one of the most powerful mainland officials based in
Hong Kong, urged more Chinese firms to use the financial hub as
a base for overseas expansions.  
    It helps that valuations are low. The benchmark Hang Seng
Index  .HIS  is trading on just 9 times forward earnings, per
LSEG, versus the 10-year average of over 10 times. In sectors
where consolidation is overdue, such as shipping, there could be
more cross-border M&A.
    Take CK Hutchison 0001.HK founded by Li Ka-Shing. Ports used
to account for a fifth of its revenue two decades ago, but that
figure has more than halved due to competition from the
mainland. Today, the telecoms-to-retail conglomerate trades at
just 29% of its net asset value. State-owned China Merchants,
which already operates ports in the Shenzhen, would be a logical
buyer. Deals like this can offer a handy escape hatch for Li and
peers.
    
    CONTEXT NEWS
    Telecommunications company HKBN said on Nov. 20 it has
received a non-binding proposal from China Mobile. The Hong
Kong-listed firm has a market capitalisation of $770 million.
    China Mobile’s Hong Kong unit is also in talks to buy a
commercial building in Hong Kong’s harbourfront that was valued
at about $900 million in 2022, Bloomberg reported on Nov. 15,
citing sources.

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Graphic: Hong Kong's Hang Seng Index is beaten down    https://reut.rs/4eST8he
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))