Focus on Hong Kong immigration and Hong Kong economy: The asset movements of Chinese tycoon Li Ka-shing continue to unfold.
Recently, Bloomberg cited sources indicating that private equity firm Kohlberg Kravis Roberts & Co. L.P. (KKR) intends to bid for Li Ka-shing's ParknShop business.
Representatives from KKR's Asia-Pacific division and ParknShop in Hong Kong both declined to comment to the First Financial Daily.
This Tuesday, Prosperity REIT (00778.HK) announced that it has signed a non-binding memorandum of understanding with Li Ka-shing's other listed company, Cheung Kong Holdings (112.7, -1.30, -1.14%, real-time quote) (00001.HK), to acquire the entire property of the Kingswood Ginza.
Li Ka-shing's recent actions in the capital market both involve divesting assets in Hong Kong. Such frequent moves have sparked multiple speculations from the outside world.
Frequent Divestment of Assets in Hong Kong
According to Bloomberg, sources say that private equity firm KKR is evaluating a bid for Li Ka-shing's Hong Kong supermarket business, ParknShop, and that KKR is in discussions with banks regarding financing for a potential deal. Both KKR and ParknShop declined to comment on this matter.
According to KKR's official information, since its first investment in the retail sector in 1981, KKR has completed 21 transactions in the global retail industry by 2012, with a total investment of $60 billion. The types of retail businesses it has invested in include supermarkets, pharmacies, department stores, food distribution companies, and specialty retail stores.
In 2012, KKR invested $30 million in Chinese clothing retailer Novo. KKR is considered an industry veteran in retail investments.
An industry insider, who wished to remain anonymous, told reporters that KKR is a well-known leveraged buyout firm with many professionals who transform acquired companies in terms of business or capital, and then sell them at a good price or take them public. Since the funds for acquisitions come from bank loans, the cost is very low, and after selling at a high price, KKR can profit from the price difference.
The insider stated that according to KKR's previous capital operation methods, if KKR acquires ParknShop, it is expected to maintain ParknShop's original operating model. "Because the ParknShop brand is still quite valuable."
Following the proposed sale of the ParknShop business, the Cheung Kong Group (the collective name for Cheung Kong Holdings and Hutchison Whampoa (90.95, -1.70, -1.84%, real-time quote)) is preparing to sell assets in Hong Kong for the second time in a short period.
Prosperity REIT announced on Tuesday that it intends to offer HKD 58.49 billion to acquire the entire property of Kingswood Ginza from Cheung Kong Holdings. Although this transaction is between companies within the Cheung Kong Group, the announcement disclosed that Prosperity REIT will acquire all issued share capital of Tianshuiwei Development Limited and transfer shareholder loans to Prosperity REIT.
It is understood that the Kingswood Ginza shopping mall was originally wholly owned by Weicheng Limited, in which Cheung Kong Holdings holds a 98.47% stake (Tianshuiwei Development Limited is a subsidiary of Weicheng Limited), and Cheung Kong Holdings currently holds a 30.83% stake in Prosperity REIT. In other words, Cheung Kong Holdings is effectively reducing its stake in Kingswood Ginza by nearly 70%.
According to the memorandum of understanding, the transaction is expected to reach a share purchase agreement by September 30, 2013.
Chinese Tycoon "Moves from Hong Kong to Europe"?
A report from Nomura Holdings states that Hutchison Whampoa has been monetizing mature assets with limited growth potential in recent years and reinvesting the funds into undervalued European assets.
In fact, comparing the regional performance contributions of Hutchison Whampoa (00013.HK) over the past three years, it can be seen that the European market has gradually replaced the Hong Kong market as its main source of profit.
In 2010, the EBIT (Earnings Before Interest and Taxes) from Hutchison Whampoa's Hong Kong operations accounted for 30%, in 2011 it was 19%, and in 2012 it dropped to 16%; while in Europe, the EBIT was 17% in 2010, 29% in 2011, and reached 34% in 2012.
Another listed company under Li Ka-shing, Cheung Kong Holdings, reported that the revenue from operations outside Hong Kong (including property sales from joint ventures) increased from 23% of total revenue in 2011 to 38% in 2012.
After the outbreak of the global financial crisis, Li Ka-shing's "Cheung Kong Group" invested billions of dollars in acquiring significant infrastructure and telecommunications assets in Europe, including acquiring the UK power grid, water, and gas assets for HKD 155 billion, acquiring the Austrian 3G telecommunications business for EUR 1.3 billion, acquiring Canadian power plant assets for HKD 718 million, and purchasing a Dutch energy company for HKD 9.7 billion.
Guotai Junan International's latest view indicates that the strong performance of Power Assets Holdings and the continued growth of its UK business have led to Hutchison Whampoa's better-than-expected performance in the first half of the year. Guotai Junan International also believes that in the first half of the year, Hutchison Whampoa acquired New Zealand's Enciro Waste and the Netherlands' AVR, both of which are expected to provide the company with recurring cash flow and stable returns in a timely manner.