Hong Kong: Li’s reshuffle shows change is afoot for Asia’s family empires

At the same time as word went out last Friday that Victor Li, son of Li Ka-shing, would meet the press to discuss a mystery issue, the Hong Kong press corps duly scrambled. As heir to a man the local media have dubbed “Superman”, the junior Mr Li merits intense coverage. Once it was clear what the last-minute summons was for — a near-total reorganisation of the family empire — bankers began to scramble too.

The press were rewarded with not just Victor but as well Mr Li senior. The pay-off from the announcement for bankers, and additional importantly investors, will come if other companies in the region follow Mr Li’s lead.

Mr Li’s plan was simple: to split his two major companies into a property group and a ports-to-pharmacies conglomerate, thereby unlocking price trapped in messy cross-shareholdings. Investors approved wholeheartedly. Both Cheung Kong and Hutchison Whampoa, the companies at the heart of the transaction, were rewarded on Monday with double-digit rallies that added $11.5bn, or 14 %, to their combined market capitalisation.

The reorganisation is hardly revolutionary, but the idea of cleanly dividing businesses and tidying up ownership structures is rare in Asia, where corporate tangles are the norm and property is usually sprinkled throughout tycoons’ holdings. The empires themselves tend to consist of collections of companies linked via shareholding structures that additional closely resemble a bowl of noodle soup than any corporate logic.

One Asia-based private equity manager equates the family tendency to collect assets to a private equity firm that at no time cashes out — or perhaps cannot, given that the region’s dealmaking markets, and its equity markets, are smaller and less liquid than elsewhere. That makes it harder to find buyers. But he adds: “The whole DNA is not to sell assets, either.”

There are other signs that change is afoot. In Korea the Lee family’s grip on the sprawling Samsung group is one of the additional extreme examples of corporate spaghetti, but that family is as well edging towards reorganisation as succession issues loom (which they as well do for the octogenarian Mr Li). Investors have welcomed the Lee family’s moves, doubling the share price of Cheil Industries, the de facto holding company, on its initial day of trading last month.

“There is a general theme,” one dealmaker said. “At the same time as it becomes difficult to generate economic increase across operations, again people start looking at other ways of creating price.”
In Hong Kong the market is betting that Wheelock, the holding company for the Woo family, and Wharf, one of its holdings, will be next in line for a reshuffle. Wheelock had its second-best day in a decade on Monday, jumping 7 % on speculation that it could follow Mr Li’s example. Like Hutchison Whampoa, the Woo companies are colonial-era trading houses. The two — Wheelock holds 55 % of Wharf — between them home substantial property assets alongside a cable television and broadband provider, hotels and container terminal operations in various ports.

Wheelock and Wharf are as well both domiciled in Hong Kong — which may add to the attraction of reorganising. While switching from a Hong Kong to a Cayman Islands domicile does not appear to have been a leading driver behind Mr Li’s move, his companies’ new home has in general fewer restrictions than Hong Kong. Additional than three-quarters of the city’s listed companies are by presently based in either the Caymans or the Virgin Islands. Those that have remained tend to be smaller or to have a long local history.

But families must be careful of interpreting the share jumps for the Li, Lee and Woo empires as full-scale backing for any change. Yesterday Chung Mong-koo, patriarch of Hyundai, Korea’s biggest chaebol next Samsung, failed to sell a $1.25bn slice of an affiliate next wary investors balked at the price and size of the unexpected offering.

Hopeful investors must as well bear in mind that change is relative. Asked last Friday to comment on what the Cheung Kong/Hutchison moves may mean for the Li family’s succession plans, Hutchison chief executive Canning Fok was suitably circumspect. “We don’t interpret what the large boss says,” he said, to laughter.

Which suggests that while company structures may be shifting, family dominance is not.