Hong Kong: ParknShop sale worries Li Ka-shing watchers
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Hong Kong: ParknShop sale worries Li Ka-shing watchers

Billionaire looks beyond Hong Kong; Legacy planning underway

Why would you buy anything when Li Ka-shing is selling? This was the question occupying Hong Kong’s business community last month as Li’s supermarket chain, ParknShop, went on the block for as much as $4 billion.

Deal-hungry bankers have been drawn to Li Ka-shing’s sale of his supermarket chain, ParknShop
Deal-hungry bankers have been drawn to Li Ka-shing’s sale of his supermarket chain, ParknShop

The prospect of the sale, which, realistically, is expected to fetch more like $2.5 billion, according to sources close to the transaction, provided a lift to deal-hungry bankers in the region, many of whom are starting to betray signs of nervousness about how this year, after an encouraging first half, will pan out. Li is considered to be the richest man in Asia, with personal wealth estimated at $30 billion and business interests worth an estimated $100 billion. His buying and selling habits are closely watched and widely copied. In Hong Kong he is revered as a local boy made good, having started as a plastic flower salesman. But any actions on his part that are deemed to have a negative impact on the wider investment appetite in Hong Kong can be fiercely criticized. Several of Hong Kong’s richest businessmen have recently sought to diversify away from the special administrative region. Some worry that any moves by Li to loosen his ties with Hong Kong will have a knock-on effect.

ParknShop is part of Hutchison Whampoa, the investment holding company of Li’s Cheung Kong Group. ParknShop is perhaps the most visible and recognizable part of Li’s empire, which also stretches to ports, property and mobile phones. ParknShop has 345 stores in Hong Kong and revenue last year was close to $3 billion. Established in 1973, the chain has close to a 40% share of Hong Kong supermarket business for the year to June, ahead of Dairy Farm, which has about a third of the market.

Hutch’, for its part, issued a statement confirming that it was reviewing its ParknShop operations, but said that the company "has no intention of withdrawing from Hong Kong, and market speculations are groundless".

Some analysts said Li’s decision to put ParknShop up for sale might have been motivated by last year’s introduction of a competition law, a first for Hong Kong, which aims to crack down on local monopolies.

One banker also pointed out that it was not usual by any means for Li to so publicly state that one of his businesses was up for sale. The banker said it suggested that the sale is part of a wider effort by Li to secure his legacy. The deal is a nuanced one and several bids, submitted in August, which vary substantially, are being considered.

Bidders so far include Australia’s Woolworths, China’s Sun Art Retail Group, Japan’s Aeon Co and China’s state-owned China Resources Enterprise (CRE), which was seen as the front-runner among first-round bidders. Thai billionaire Dhanin Chearavanont’s Charoen Pakphand Group is also thought to be bidding. Early bidders had included private equity firms KKR and TPG Capital Management, but both are thought to have been told their bids have been unsuccessful.

40% ParknShop’s share of the Hong Kong supermarket business

Analysts and sources close to the talks said a deal with CRE made the most sense but that executives at Hutch were not in favour of it. The company already has a strong foothold in Hong Kong through its China Resources Vanguard Unit and a joint venture with UK retail market leader Tesco. One banker said the fact Li was being so public about his intentions for ParknShop was a sign the octogenarian businessman was beginning to think more seriously about his legacy as it relates to Hong Kong and holdings beyond it. Europe has proved to be an attractive proposition for Li and a host of Chinese buyers in recent times, as they have snapped up bargain assets across a broad range of sectors.

On reporting a 13% decline in Cheung Kong’s first-half profits, Li said he planned to increase his share of the telecommunications market in Europe and seek other acquisitions primarily as a result of the slowdown in Hong Kong property sales. Li has been investing in Hong Kong property almost since the start of his business career, beginning by snapping up bargain assets after riots during China’s Cultural Revolution in the late 1960s sent prices sharply lower.

Goldman Sachs and Bank of America Merrill Lynch are thought to have been hired to run the sale of ParknShop for Li, although a host of other banks are involved at this stage as a result of their relationships with potential bidders.

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