Li Ka-Shing’s Hutchison Whampoa Ltd., the world’s biggest container-terminal operator, will sell deep- water port holdings in Hong Kong and southern China, hubs of record global trade, in what may be Singapore’s largest-ever initial public offering.
The company will retain a stake of about 25 percent in the trust that will own terminals in Hong Kong and neighboring Guangdong province, port operations along the Pearl River and shipping-support businesses, it said in a statement today.
The Hutchison Port Holdings Trust offering may raise at least $6 billion, Reuters said, citing IFR, an affiliated news service. Hong Kong-based Hutchison is selling the assets, with an operating margin of about 50 percent, as China’s efforts to cool its economy threaten to damp exports that have jumped sixfold in a decade.
“Hutchison may want to do the IPO before that policy really starts to affect the port business,” said Jay Ryu, a Hong Kong-based analyst at Mirae Asset Securities. “Things seem to have slowed down with China trying to curb growth.”
The country told banks to set aside more deposits as reserves for the fourth time in just over two months last week. It also raised interest rates on Dec. 25 after food costs jumped 12 percent from a year earlier in November.
DBS Bank Ltd., Deutsche Bank AG and Goldman Sachs Group Inc. will manage the listing, the statement said.
Frank Sixt, Hutchison Whampoa’s group finance director, declined to comment on the size of the offering in a conference call today with analysts and reporters.
A $6 billion sale “doesn’t seem to be a crazy figure” based on rough calculations, Ryu said. The IPO could be the largest in Singapore, he said.
Hutchison fell 2.4 percent, the most in a month, to close at HK$93.50 in Hong Kong trading. The company has jumped 63 percent in the past year, compared with a 13 percent gain for the benchmark Hang Seng Index.
The assets to be sold generate about half of earnings before interest, tax, depreciation and amortization at Hutchison’s port unit, Fitch Ratings said in a statement. The sale will likely result in a “meaningful” reduction in Hutchison’s debt, without affecting its A- rating, Fitch said. A-is Fitch’s seventh-highest investment grade.
Li, Hong Kong’s richest man with a $24 billion fortune, according to Forbes, arrived in the city as a refugee from China in 1940. He swept factory floors to survive during the Japanese occupation of Hong Kong during World War II. After the war, he opened a plastic-flower factory and began buying Hong Kong property in 1967 when riots tied to China’s Cultural Revolution caused land prices in the city to collapse. The 82-year-old is the chairman of Hutchison and controls it through his flagship company Cheung Kong Holdings Ltd.
Hutchison, which also invests in real estate, mobile-phone services, infrastructure and drugstores, said the sale would help it pay for expansion plans and pare debt, without elaboration. The new trust, to be managed by Hutchison, will also be able to raise funds more easily, according to the statement.
“The Pearl River Delta has very good growth prospects in terms of export trade and to a growing extent imports,” Sixt said on the call. “Growth in this area has certainly not peaked.”
The company doesn’t plan to inject other assets into the new trust as it will only operate in the Pearl River Delta, Sixt said. There also no plans to form other port trusts, he said.
IPOs in Singapore raised $5.4 billion last year, with Global Logistic Properties Ltd.’s $3 billion offering being the largest of the 20 sales, according to data compiled by Bloomberg. Hong Kong’s 87 offerings raised about 10 times as much.
Hutchison said it is listing the new port company in Singapore because trusts can’t be traded on Hong Kong’s exchange. It may eventually offer units in its home city if regulations change, it said. The company opted for a trust structure because of the asset’s stable cashflow and growth potential, it said.
PSA International Pte, the terminal operator controlled by Singapore’s Temasek Holdings Pte, also owns a stake in Hutchison’s main port unit.
The assets in the trust made an operating profit of HK$5.3 billion ($681 million) on sales of HK$10.3 billion in 2009, according to the statement. That’s an operating margin of 51 percent. The company had a 60 percent market share in Hong Kong’s Kwai Tsing port and a 47 percent share in Shenzhen in the period, it said.
“Hong Kong is a cash cow,” said Johnson Leung, an analyst at Tufton Oceanic Far East Ltd. The trust plan is “a very positive move to gradually unlock asset value.”
Cosco Pacific Ltd., the container-terminal arm of China’s largest shipping group, trades at about 15 times estimated earnings, according to data compiled by Bloomberg. China Merchants Holdings (International) Co., which has stakes in ports moving about a third of China’s containers, trades at about 21 times. Both companies are listed in Hong Kong.
Container traffic in Hong Kong rose 12 percent last year to 23.5 million boxes, according to preliminary figures from the city’s Port Development Council. Volumes in Shanghai surged 16 percent to 29.1 million, as the port surpassed Singapore as the world’s busiest, according to city government figures. Traffic in Shenzhen jumped 25 percent to 20.7 million in the first 11 months, based on data from the Municipal Statistics Bureau.
Sea-cargo traffic in China, Vietnam, India and other emerging markets may grow 7 percent annually through 2015, according to A.P. Moeller-Maersk A/S, operator of the world’s largest container-shipping line.
Hutchison’s terminal unit, Hutchison Port Holdings Ltd., has interests in 308 berths in 51 ports across 25 countries, according to the statement.
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