The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Ka Sing Chan
HONG KONG, March 6 (Reuters Breakingviews) - Hong Kong's most famous dealmakers are overdue a big purchase - if geopolitics don't get in the way. Li Ka-shing's infrastructure empire, CK Hutchison 0001.HK, has agreed to sell its port operations spanning 23 countries to a consortium led by BlackRock. How his son, Chair Victor Li, will use the $19 billion of proceeds will be a key test.
The younger Li can claim credit for navigating a turbulent situation. In January, U.S. President Donald Trump warned that China "is operating the Panama Canal" and that the United States was going to "take it back". That promptly spurred CK Hutchison, which won rights to operate Panama's Balboa and Cristobal ports in the 1990s, to take drastic action, according to the Financial Times, citing sources.
As part of the deal, CK will keep its Hong Kong and Chinese ports. It will sell an 80% controlling stake in Hutchison Port Holdings, which operates in Panama and other countries, for $22.8 billion, including debt. That's roughly 13 times expected 2024 EBITDA, per CLSA, higher than the average transaction value of 10 times in the industry. As of Thursday, CK's Hong Kong shares are up over 35% since the news.
All eyes will be on Li junior's next move. The 60-year-old in 2018 took over as chair from his father, whose dealmaking prowess transformed CK Hutchison into a multinational conglomerate spanning retail, telecoms to power assets. But despite its geographic spread, the flagship group has suffered from a deep China discount. Even after the latest rally, its stock trades at just 31% its book value, per LSEG data.
To fix the stubborn discount, CK has been deleveraging and returning more cash to shareholders. As of June, the group's net debt to EBITDA ratio has fallen to 1.63, down from 2.32 in 2021, per Visible Alpha. Over the same period, CK has ramped up dividends to 40% of earnings, from 31%.
A bold purchase, though, could cement the younger Li's legacy as a shrewd dealmaker like his father. CK's infrastructure unit has already made a $9 billion bid for Thames Water, Financial Times reported last month, citing sources. That same unit is also exploring a bid for a British waste management firm that could be worth 7 billion pounds, Bloomberg separately reported this month. After pulling off the group's biggest-ever disposal, it's time to seize the moment and act decisively.
CONTEXT NEWS
Hong Kong-based conglomerate CK Hutchison said on March 4 that it had reached an agreement to sell an 80% stake in its global port business, which operates in 23 countries including Panama, for $22.8 billion including debt, to a consortium comprising BlackRock, Global Infrastructure Partners and Terminal Investment.
If completed, the transaction can deliver cash proceeds in excess of $19 billion, CK Hutchison said in a filing.
CK Hutchison’s Hong Kong shares closed up 22% on March 5.
Graphic: CK Hutchison has rallied on its ports sale https://reut.rs/4bB1fiz
(Editing by Robyn Mak and Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.