Hutchison Whampoa owner restructures group to improve value

The ownership structure of the Hutchison Whampoa telecoms group is to be reorganised as part of wider efforts by chairman Li Ka-shing to improve the value of his business empire in order to attract more investors.

In summary, the intention is to put the group's property assets into a new company, Cheung Kong Property Holdings Ltd (CK Property), while another new company, CK Hutchison Holdings Ltd (CKH Holdings), will manage the remaining assets including ports, telecoms, retail, energy, aircraft leasing and other businesses.

As reported by Reuters, the goal of the reorganisation is to address the fact that the group's listed companies trade at a discount to the book values of their net assets, described as a common feature of conglomerates.

"This transaction is a watershed event in our group's history. It is transformational from the point of view of shareholder value," Li said in a statement, Reuters reported.

As things stand, the two largest listed companies in the group are Cheung Kong (Holdings) and Hutchison Whampoa. Cheung Kong owns almost 50 per cent of Hutchison. In a first step, CKH Holdings is to be established as a new holding company. Hutchison will then be merged into CKH Holdings, which in turn will spin off its property assets into CK Property.

According to a statement from Cheung Kong and Hutchison Whampoa, Cheung Kong shares were trading at a 23 per cent discount to its book equity value attributable to shareholders as at June 30, 2014.

"A part of this is attributable to the holding company discount on Cheung Kong's stake in Hutchison, which would be eliminated through the proposals as shareholders will hold shares in CKH Holdings and CK Property directly," the statement added.

The proposals are subjected to regulatory and shareholder approvals of Hutchison Whampoa and Cheung Kong.

Fitch Ratings noted that the planned restructuring does not affect Hutchison Whampoa's credit ratings: the Hong Kong-based company has a long-term issuer default rating of 'A-' with stable outlook.

Given Hutchison's financial and liquidity profile, the ratings agency said it expects CKH Holdings to have sufficient resources to meet any obligations that may arise from the proposed reorganisation to repay "certain indebtedness of Hutchison and Cheung Kong."

Hutchison Whampoa operates telecoms companies in Europe and Asia. In Europe, the Three (3) Group Europe operates businesses under the "3" brand in Italy, the UK, Sweden, Denmark, Austria and Ireland.

For more:
- see this statement from Cheung Kong and Hutchison Whampoa
- see this Reuters article
- see this Fitch Ratings statement (via Reuters)

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