Li Ka-shing’s new captive trustBy Asia Sentinel Jan 25, 2011 2:55PM UTC
Hong Kong’s richest mogul spins his port business into a unit whose trustee can’t be removed, reports Asia Sentinel
Singapore prides itself on high standards of corporate governance. But one aspect of its securities laws is being used by Hong Kong mogul Li Ka-shing to find a new way of doing what he does best – promoting his holding company’s interests at the expense of downstream companies and outside shareholders.
His Hutchison Whampoa Ltd (HWL) group is to spin off a big chunk of its huge global ports business into a separately listed outfit to be based and quoted in Singapore, not Hong Kong.
Does Hong Kong’s richest man really love Singapore so much that he wants to give its stock market a boost to the apparent detriment in Hong Kong? It seems unlikely, even though Li has big property interests there as elsewhere. Indeed, the Port of Singapore Authority is global rival to Hutchison, at least in theory although they have some cross shareholdings and joint ventures including its main ports operating vehicles Hutchison Port Holdings and Hutchison Port Investment. Nor is Li just returning a favor to a Singapore government which owns PSA through state holding company Temasek.
The overriding reason for the Singapore listing is that Singapore law makes provision for a so-called Business Trust. This is not possible in Hong Kong. In this case Hutchison’s port interests in southern China are being put into Hutchison Port Holdings Trust of which the trustee will be a subsidiary of HWL. The trustee can only be removed by a vote of 75 percent of the shareholders which effectively means that the trust is a permanent captive of HWL. It can maintain this control with just 25 percent of the HPH shares. Thus godfather Li is going to be able to raise several billion dollars by selling off a majority stake while retaining effective control. That would be impossible if HPH was a company not a trust. There may also be some Singapore tax benefits from the trust status.
The trust concept is thus an even better way for Li to enlarge his empire without having to increase his own stake than the existing pyramid structure and cross holdings by which his 42 percent owned Cheung Kong Holdings controls listed 49 percent owned HWL which controls CK Infrastructure which controls HK Electric (38 percent).
In the short run this listing may benefit HWL shareholders by providing a heap of cash to offset the continued losses of Hutchison’s international telephone operations. But prospective investors should beware of Li’s ability to manipulate the group’s ownership structure to the best advantage of his interests, primarily represented by his Cheung Kong stake.