Shareholders should not expect too much from the restructuring of tycoon Li Ka-shing’s business empire, as a higher proportion of the group’s dividend payout could go to the Li family and trusts.
Currently, Li family and trusts hold 43.42 percent stake in Cheung Kong, which in turn controls 49.97 percent of Hutchison Whampoa. In the present structure, if Cheung Kong and Hutchison both decide to pay HK$100 dividend, the Li family/trusts will get HK$43. The Companies Ordinance in Hong Kong prevents Cheung Kong from getting HK$50 in dividend despite its ownership in Hutchison.
However, the case will be different after the shake-up, when the Li family/trusts will own 30.15 percent stake in both the new entities being created — CKH Holdings and CK Property. If CKH Holdings and CK Property both decide to pay HK$100 dividend, the Li family/trusts will effectively get HK$60.3 dividend. Removal of the current holding company structure will enable the Li family to invest directly alongside the trust.
Li has seemingly opted for the more complex way in restructuring his business empire. The tycoon may have recognized the benefits to be had from incorporating the business in Cayman Islands. Meanwhile, it is difficult to say if there was any political consideration.
As group executives said, removing the holding company discount, enhancing the size and scale, and boosting the proportion of non-property business are all reasons behind the shake-up.
Under the spin-off proposal, Cheung Kong shareholders will receive one CKH Holdings share for every one Cheung Kong share. However, for every share held in Hutchison, holders will only get 0.684 of a CKH Holdings share. The deal appears to be tipped in favor of Cheung Kong shareholders.
However, such conclusion may also be off the mark since Cheung Kong too has stake in Hutchison. Moreover, the exchange ratio has been determined on the basis of closing share prices in the secondary market, which may help dispel speculation that Li intends to profit from the exchange program. Overall, it looks more likely that Li plans to increase his holdings of non-property business.
Li’s business empire will become flatter after the restructuring, which is set to benefit the group and big shareholders. And changes in the company boards will help pave the way for future business development and further restructuring.
For example, Cheung Kong board now has eight executive members, including chairman Li Ka-shing, his son Victor Li Tzar-kuoi — who is vice chairman and managing director; and vice managing directors Kam Hing-lam and Ip Tak-chuen.
Meanwhile, Hutchison board currently has seven executive members, including chairman Li, vice chairman Victor Li and managing director Canning Fok Kin-ning.
After the restructuring, Victor Li and Canning Fok will be joint managing directors, which means the junior Li will be involved more in daily business operations, a move that will prepare him to eventually take the group’s reins from his father. Meanwhile, some non-executive members or independent members may find places on the boards of both the two new companies.
This article appeared in the Hong Kong Economic Journal on Jan. 19.
Translation by Julie Zhu
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