What is prompting the Wheelock privatization move?

March 02, 2020 18:04
A view of Russell Street which earned the distinction of being the world's most expensive retail street. Following a golden period, Hong Kong's property market faces many uncertainties now. Photo: Reuters

Billionaire Peter Woo Kwong-ching intends to take its flagship property empire Wheelock & Co (00020.HK) private.

This is the second major move from the group in recent years, since a previous overhaul in 2017. The way I see it, one of the benefits of the plan is it could make it easier for disposal of core property assets if there is a need.

Woo spun off a range of prime commercial properties including Times Square, Harbor City, Crawford House, The Murray and Plaza Hollywood and put them into the Wharf Real Estate Investment Company (01997.HK).

Hong Kong’s retail, tourism and commercial property market were at a boom a couple of years ago. For instance, Russell Street, where Times Square is located, was ranked as the world's most expensive retail street, by rental value, for several years. It would have been unthinkable for the group to sell off these “golden eggs.”

But things have changed. The coronavirus outbreak may only have a short-term impact, but the months-long social unrest last year will have much far-reaching effect on the city’s property market values.

This is not to say prime commercial properties are going to be worth a lot less in the future. But at least compared with the golden era, there are a lot more uncertainties, and therefore room for price adjustments.

Under the current structure, Woo has to obtain shareholders' approval if he wants to make major divestitures, hence flexibility would be less.

But if the privatization is done, Woo’s family will directly hold 44.5 percent stake in Wharf Real Estate Investment Company and 48.8 percent of Wharf (Holdings) (00004.HK). Asset disposal through sale of stakes in these units would be much easier to maneuver, especially when it comes to the deal pricing and structuring.

This article appeared in the Hong Kong Economic Journal on March 2

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist