18 April 2019
Paul Cheung's Kingboard has agreed to sell its entire 9.61 percent stake in Cathay Pacific  to Qatar Airways for HK$5.16 billion. Photos: HKEJ, AFP, Reuters
Paul Cheung's Kingboard has agreed to sell its entire 9.61 percent stake in Cathay Pacific to Qatar Airways for HK$5.16 billion. Photos: HKEJ, AFP, Reuters

Kingboard jumps out of Cathay flight

Paul Cheung Kwok-wing, chairman and founder of Kingboard Chemical Holdings Ltd. (00148.HK), had thought he had booked a good flight on Cathay Pacific Airways Ltd. (00293.HK), but the take-off proved a long wait for him so he decided to give his seat to someone else.

There were no complaints because he made about HK$800 million in less than a year, but his investors would have been happier if he had chosen to put his HK$4.3 billion investment in Tracker Fund instead.

That, in a nutshell, is what is happening at Cathay Pacific. Minority shareholder Kingboard has announced that it is selling its entire 9.61 percent stake in the airline to Qatar Airways for HK$5.16 billion. The transaction price of HK$13.65 a share is 3 percent above last Friday’s closing price.

That’s a lot of money for 61-year-old Cheung, who has boasted that he has not incurred any losses in his two decades of investing.

Things started getting sour when Cathay, which he had called a “once-in-a-lifetime investment opportunity with a strong future ahead”, dipped below the entry price.

But he managed to sell to the Middle Eastern carrier at a 20 percent profit, which is pretty surprising considering that his investment in Cathay was less than a year old.

Last December, investors scratched their heads after Kingboard disclosed an initial purchase of a 5 percent stake in Cathay because it was an unsolicited acquisition from the perspective of majority shareholders Swire Pacific Ltd. (00019.HK, 00087.HK) and Air China Ltd. (00753.HK), which together own nearly 75 percent.

After all, there was little synergy between a laminates maker and Hong Kong’s flag carrier, which has been struggling to grow its revenue and cut costs while trying to please its very demanding customers.

But at that time the chemical company called the deal a good investment opportunity, considering that Cathay was a reputable international airline, adding that the transaction, made in normal commercial terms, was fair, reasonable and in the interest of both the company and the shareholders.

Four months ago, Cheung stressed to reporters that he was a long-term investor and not a corporate raider. He also revealed that he had offered to buy the Swire family’s stake in Cathay for more than HK$20 a share,but had been spurned.

But then the sudden change of heart.

The truth is that if he didn’t invest in Cathay and instead put the money in Tracker Fund, which tracks the performance of the Hang Seng Index, he would have made a 30 percent return instead of his 20 percent profit in one year.

And that would have saved him from all the embarrassment of eating his words that he was in for the long haul on Cathay and that he was not simply an opportunistic speculator who has not added any value to the declining airline franchise.

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EJ Insight writer

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