August 20, 2019

Breakingviews: Li Ka-shing raises fresh glass to diversification

by Breakingviews.

Hong Kong’s richest man is further diversifying his assets. CK Asset, the property vehicle a third-owned by Li Ka-shing, on Monday said it was buying UK pub group Greene King for 4.6 billion pounds including debt. While that’s a small beer for a man with a $28 billion fortune it’s still a minor thumbs-up of sorts for Brexit Britain, and the opposite for the protest-ridden Fragrant Harbour.

At first, CK Asset’s 850 pence-a-share offer looks dreamed up in one of its target’s 2,730 pubs. It represents a 51% premium to Greene King’s Friday closing price for one of UK Plc’s less glamorous assets, whose forecast EBITDA for the year ending next April is set to be lower than this year, according to Refinitiv data. Assuming minimal synergies and Refinitiv’s 365 million pounds of forecast operating profit, Li is looking at an underwhelming 6% return on invested capital.

Still, his deal equates to 9.5 times last year’s EBITDA, below local rival JD Wetherspoon’s current valuation. It’s also below the 11.4 times EBITDA forked out by Britain’s Stonegate Pub a month ago for rival Ei Group. CK Asset also already knows the sector by virtue of buying more than 100 British pubs in December 2016.

The bigger play for Li and other Hong Kong-based tycoons is to limit the extent that increasingly fractious protests on their home turf impinge on their wealth. CK Hutchison, Li’s ports-to-real estate group, has already done so progressively over the last few years to the point where only 9% of sales originate from Hong Kong. Buying Greene King allows CK Asset to continue the same trend, as well as exploiting the relative value to foreign buyers afforded by the plummeting pound.

It’s hardly a game-changer for a Britain quaking in the face of a disorderly exit from the European Union in October. Still, Li could have merely maintained his UK exposure by selling existing assets such as British utilities. Instead, he’s putting in new money.

It’s less cheery for Hong Kong. Last Friday, the billionaire exhorted fellow citizens protesting against Chinese overreach to choose love over violence. His latest deal will help at the margin if they choose the latter.

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