Hong Kong billionaire Li Ka-shing made his fortune over a half-century of well-timed bets on everything from property to power generation. His latest deals suggest he’s wagering the city’s era of fast growth may be drawing to an end.
Asia’s richest man may raise as much as $18 billion selling stakes in his retail unit and Hong Kong’s second-largest power supplier. The moves, announced in the past month, would free up money for Li to buy more assets in Europe, where his companies including Hutchison Whampoa Ltd. (13) have spent $14.5 billion on acquisitions the past three years, according to data compiled by Bloomberg.
Li’s dealings reflect the challenge Hong Kong faces in maintaining economic growth that averaged 4.6 percent in the past decade, as leaders fight to deflate a property bubble and China sets up free-trade zones that may one day compete with the territory. BlackRock Inc., the world’s biggest money manager, is cutting investments in Hong Kong on concern the city’s equity and property markets will underperform.
“It’s no coincidence that large tycoons here are starting to or trying to divest assets,” Andrew Swan, head of Asian equities at BlackRock, which manages $4.1 trillion, said in an Oct. 10 interview.
Hong Kong is vulnerable as the U.S. pares stimulus and China cracks down on speculative lending, reducing inflows that boosted the city’s equity and property markets the past five years. It now has the world’s most expensive housing, stoking popular discontent with the city’s leader, Leung Chun-ying.
Li, with a fortune of $29 billion according to the Bloomberg Billionaires Index, expanded his empire even as Hong Kong weathered crises ranging from rioting in the 1960s, a run on the currency in the 1980s, a property collapse in the late 1990s and the outbreak of the SARS virus in 2003.
The 85-year-old tycoon stepped up investing in Hong Kong real estate in 1967, after rioting incited by the Cultural Revolution depressed prices. He correctly forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices.
“Li is like Warren Buffett,” said Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas SA, referring to the billionaire chairman of Berkshire Hathaway Inc. “He looks at the long term and he likes to pick the bottom.”
Li is also renowned for selling at the right time. Hutchison Whampoa, which started Orange Plc’s U.K. mobile-phone network in 1994, sold its stake in the money-losing business five years later for a $15 billion profit. His Hutchison Telecommunications International Ltd. divested its Indian operations for $13.1 billion in 2007 to Vodafone Group Plc, (VOD) which three years later wrote down a quarter of their value.
Hutchison Whampoa said Oct. 18 it’s considering spinning off part of A.S. Watson Group, the retail empire that operates Watsons stores and the Hong Kong supermarket chain ParknShop. That sale could raise as much as $13 billion, according to estimates by Credit Suisse Group AG. Power Assets Holdings Ltd. (6), the utility Li controls, said last month it will seek a separate listing of its Hong Kong electricity arm to fund investments overseas.
Selling shares in the Power Assets division may bring in up to $5 billion, people with knowledge of the proposed transaction said last month. The company may start the sale as early as this year, the people said. Jeremy Lau, a spokesman for Hutchison Whampoa, declined to comment.
Li had attempted to sell ParknShop to a strategic buyer, though bidders including Thai billionaire Dhanin Chearavanont’s Charoen Pokphand Group and Woolworths Ltd. balked at the price he was seeking, according to people familiar with the matter. Hutchison Whampoa was asking for at least $3 billion for ParknShop.
The sales would give Li added firepower to pursue European assets as the continent emerges from an economic slump. Li said in August he plans to bolster his telecommunications market share in Europe and that “major economies are showing signs of stabilization and gradual recovery.”
European Central Bank President Mario Draghi said Oct. 2 he expects the region’s economic activity to benefit from rising demand for exports, while economic confidence as measured by the European Commission rose for a fifth month in September in signs that the economy is improving.
Hutchison Whampoa, Li’s biggest company, said in July it is seeking more telecom assets in Italy, after agreeing the month before to buy Telefonica SA (TEF)’s Irish unit for as much as $1.1 billion. Also in June, a group of companies controlled by Li agreed to buy Dutch waste processor AVR-Afvalverwerking BV for $1.3 billion.
The billionaire told reporters Sept. 17 he loves Hong Kong and would “never” move his companies’ headquarters, according to a transcript of his comments by Cheung Kong Holdings Ltd. (1), his flagship property company.
Cheung Kong in August said earnings from property sales fell about 37 percent in the first half from a year earlier because of government efforts to rein in prices. John Swire & Sons Ltd., which controls landlord Swire Properties Ltd., said in April Hong Kong home prices are close to peaking after more than doubling since early 2009.
Leung, who took over as Hong Kong’s leader last July, has vowed to rein in home prices and bridge the city’s record wealth gap. This year, he has imposed measures such as extra property transaction taxes and tightened mortgage lending requirements. A study last month found a fifth of Hong Kong’s population lives below the poverty line, the first such report commissioned by the government.
By contrast, Hutchison, which gets more than half its revenue from Europe, boosted first-half profit by 23 percent on growth in its U.K. infrastructure businesses and Canadian energy unit. Hutchison shares have jumped 20 percent this year while Cheung Kong is up 4 percent.
“They’re seeing more opportunities in Europe compared to Asia,” Lorraine Tan, director of research at S&P Capital IQ in Singapore, said in an interview. “There are simply fewer opportunities in Hong Kong.”
Companies on the Hang Seng Index trade at an average 10.8 times reported earnings, a 38 percent discount to the MSCI All-Country World Index, underscoring investor pessimism. The Euro Stoxx 50 index trades at 17.4 times earnings.
Li isn’t alone in paring holdings in Hong Kong. Since August, local lenders Wing Hang Bank Ltd. and Chong Hing Bank Ltd. have said their founding families are in talks with potential acquirers.
Meanwhile, a challenge to Hong Kong’s status as China’s offshore financial center is looming as Shanghai begins work on a free-trade zone that’s part of efforts to allow freer currency convertibility.
The 11-square-mile zone inaugurated at the end of September could pose a “significant threat” to Hong Kong and hurt asset prices in the city, BlackRock’s Swan said. That’s a sentiment shared by Li, who said Sept. 17 the zone “will affect Hong Kong greatly” and that the city “risks falling behind.”
Hong Kong lost its position as the world’s busiest container port in 2005 and now ranks third, behind Singapore and Shanghai. It is also being overtaken this year by neighboring Shenzhen, which handled 15.3 million boxes in the first eight months compared with Hong Kong’s 14.5 million.
“Hong Kong is a very mature market,” said Ben Kwong, Hong Kong-based chief operating officer at brokerage KGI Asia Ltd. Tycoons like Li “want to make strategic changes in a new direction.”
To contact the reporters on this story: Ben Scent in Hong Kong at firstname.lastname@example.org; Kelvin Wong in Hong Kong at email@example.com; Jonathan Browning in Hong Kong at firstname.lastname@example.org; Kana Nishizawa in Hong Kong at email@example.com