Shares of Cheung Kong Holdings Ltd and Hutchison Whampoa surged on Monday after Asia’s richest man Li Ka-shing announced a restructuring of his business empire, a move he said was aimed at creating better value for shareholders.
The group said on Friday that the Hong Kong conglomerate will split into two listed companies, one focusing on property and the other on telecoms, retail and energy, in a bid to boost their value and attract more investors.
Investors will now be able to choose from a cyclical property company or a globally diversified conglomerate, providing a more streamlined corporate structure that removes many cross-group investments.
The move is seen by some industry watchers as a prelude to Li ramping up his pace of foreign acquisitions and focusing less on the Hong Kong real estate market, where he is facing strong competition from mainland Chinese developers.
Under the revamp, the companies are shifting their incorporation from Hong Kong to the Cayman Islands.
“It makes more sense if we view it as an intention to pave the way for expanding its property business overseas,” said Patrick Yiu, a director at CASH Asset Management.
Cheung Kong shares jumped more than 20 percent in early trade to HK$150.30 each, the highest since July 31. The stock then trimmed gains and was up 14.4 percent by the lunch break, heading for its biggest daily gain since October 2008. That outpaced a 0.1 percent gain in the benchmark Hang Seng Index.
Hutchison Whampoa shares rose nearly 18 percent to their highest level since September 11 last year. The stock was up 12.4 percent by midday, heading for its biggest one-day since October 1997.
“The rally was a reflection of the unlocked value for the time being,” said Linus Yip, chief strategist at First Shanghai Securities.
“The benefits of the restructuring have yet to be seen.”
Cheung Kong and Hutchison have a combined market value of $85 billion.
Some analysts said the reorganization was timed to tap growing interest in Hong Kong shares from mainland Chinese investors, following a recent link-up that allows investors in Shanghai and Hong Kong to trade shares on each other’s bourses.
There was also speculation that Li was moving the companies’ registration away from Hong Kong to reduce recent political risk following recent democracy protests, though the octogenarian billionaire denies this is the case.
Shareholders in Cheung Kong will swap their shares for a new vehicle registered in the Cayman Islands, which will absorb Cheung Kong’s 50 percent holding of Hutchison Whampoa. The combined group will then spin off the property assets.
Relocating to the Cayman Islands gives both companies greater flexibility to distribute cash to shareholders.
As part of the reorganization, Cheung Kong will ask Hutchison Whampoa shareholders to exchange each share for 0.684 CKH Holdings shares, resulting in the cancellation of Hutchison shares.
The 86-year-old Hong Kong tycoon Li built his sprawling empire over more than half a century from a plastic flower business, but has been frustrated that his group’s listed companies trade at a discount to the book values of their net assets, a common feature of conglomerates.