Cheung Kong Announces New Infrastructure Listing
7 June, 1996 - Hong Kong
Cheung Kong (Holdings) Ltd announced today the spin-off of its PRC infrastructure and infrastructure-related businesses into a new listed vehicle, Cheung Kong Infrastructure Holdings Ltd (CKI).
An application has been made to the Hong Kong Stock Exchange for the listing of CKI shares at HK$1.00 each, and the Listing Committee of the HKSE has approved in principal the listing of the shares of the Stock Exchange.
According to Mr H L Kam, Deputy Managing Director of Cheung Kong (Holdings) Ltd, "The spin-off represents a reorganisation of certain operations within the Cheung Kong Group to provide a listing for direct investment opportunity in Cheung Kong's infrastructure businesses in the PRC, and its infrastructure-related businesses in Hong Kong, the PRC and throughout the region."
"The listing of CKI will enable investors to assess and invest in these infrastructure and infrastructure-related businesses independently from other businesses of the Cheung Kong Group," explained Mr Kam. "Also, the listing will enlarge the capital base of CKI and its subsidiaries, providing it with the financial resources to continue to expand its businesses."
Mr Kam expressed, "While CKI is a new listing, it is important to remember that CKI is by no means new to the infrastructure business. CKI is a HK$700 million company with a projected 1996 profit of HK$728 million. CKI is a power company with a capacity of 2,200 MW. CKI is a road and bridge company with interest in 200 km of roads. CKI is a cement company with an annual capacity of 2.5 million tonnes of cement. CKI is a concrete company with an annual capacity of 4.7 million cubic metres of concrete. And CKI is a well-supported company, with a staff of 2,000."
Following the restructuring, all interests of Cheung Kong (Holdings) Ltd and its subsidiaries, Hutchison Whampoa Ltd and its subsidiaries, Pennywise Investments Ltd, and Triumphant Investments Ltd, in PRC power plants, toll roads and bridges; as well as all of Cheung Kong's interests in Hong Kong and PRC infrastructure-related businesses (i.e. cement, concrete, asphalt and aggregates) will be transferred to CKI, a newly incorporated subsidiary of Cheung Kong.
Also, as part of the proposed restructuring, a non-competition agreement will be entered into between Cheung Kong (Holdings) Ltd, Mr Li Ka-Shing, Mr Victor Li, and CKI.
It is anticipated that Cheung Kong's and Hutchison's shareholding interests in CKI immediately after the share offer will be reduced from approximately 90.8% to approximately 70.4% and from 8.2% to approximately 6.4% respectively. The adjusted net asset value of CKI will be increased by the net proceeds from the share offer in addition to the amount of shareholder's loans due to the Cheung Kong Group capitalised prior to the share offer.
CKI has based its business strategy around several principles, including a partnership and clustering approach, returns maximisation, fast-growing areas, security, market leadership, leveraging of resources within Cheung Kong, and human resources.
As part of its partnership and clustering approach, CKI seeks to become partners with local governments in the early stages of a city's development. By entering at such an early phase, CKI has the opportunity to invest in the foundation industries of the city. CKI contributes to the growth of the city, and becomes an integral and essential part of the local economy. As the city develops, so do the synergistic links between CKI's businesses in the city.
In order to maximise returns, CKI prefers to invest in existing projects, or projects that are already under construction. Not only does this help to produce immediate or imminent cash flows, but it also minimises CKI's project development risk.
CKI takes care to identify regions of high economic growth potential for its investments. By applying its clustering approach to these areas, CKI is well-positioned to benefit from increased returns as the economy develops.
Secure returns are an important part of our investment decisions, and CKI has made definite provisions to protect its investment. Most of CKI's PRC infrastructure contacts have been negotiated to offer a secure return in either US or Hong Kong currency. On top of this, CKI has also worked multiple guarantees into its contracts, as well as terms for fixed pricing and guaranteed completion timing.
Cheung Kong has a reputation of becoming a market leader in every business it touches. CKI plans to do the same with the infrastructure business. CKI's clustering strategy provides it with an early foothold in the markets it chooses to develop, and CKI intends to build its market position from this foundation.
As a subsidiary of the Cheung Kong Group, CKI enjoys the benefits of the name recognition and tremendous reputation of Cheung Kong. CKI also has access to the substantial pool of knowledge, experience and expertise within Cheung Kong, such as Hutchison Whampoa's experience in infrastructure and port development, and Hongkong Electric's expertise as the sole supplier of electricity for Hong Kong Island.
CKI has placed great emphasis on the quality and experience of its human resources. The top senior managers at CKI each have over 20 years of experience in their respective fields. More importantly, CKI's managers have extensive working experience in the PRC - a must for doing business in China.
CKI also has a number of strengths:
- its substantial size. The company is one of the largest Hong Kong-based investors in the PRC and has already invested in 19 projects with business valuation of HK$12.26 billion. CKI enjoys a market leadership position in the supply of cement and concrete in Hong Kong.
- its track record. CKI has an established, profitable business track record, with an audited net profit attributable to shareholders of over HK$550 million in 1995. Its infrastructure-related businesses have a history of over 100 years, and CKI has many years of valuable experience with respect to infrastructure businesses and infrastructure-related businesses in the PRC.
- its growth capacity. The company has the necessary internal financial and management resources to develop and expand its business. The company's positive net cash flow provides it with the financial strength to undertake large infrastructure projects in the PRC and to invest in other infrastructure-related businesses.
- its human resources. CKI has a strong management team in all its businesses, with many years of valuable experience. More importantly, CKI's management team has not only been selected based on its infrastructure experience, but also great emphasis has been placed on actual experience in the PRC.
- its business mix. The company strives to maintain a balance between stability and growth potential in its business operations. CKI's operations provide a complementary mix of recurring income generated by the infrastructure-related businesses in cement and concrete, supported by the secure returns and growth opportunities from the infrastructure businesses of toll roads, bridges, and power plants in the PRC.
- its Group resources and reputation. CKI can leverage off the accumulated knowledge, expertise and experience of the Cheung Kong Group, as well as access the vast pool of resources within the Cheung Kong Group and its associated companies. As one of the largest and most recognisable Hong Kong based investors in the PRC, the Cheung Kong Group enjoys widespread name recognition and a favourable reputation in Hong Kong and the PRC.
- its favourable position. The company is in a position to participate in future infrastructure and infrastructure-related opportunities in the PRC market through the knowledge and experience gained by the Cheung Kong Group in the PRC and the good working relations established with provincial and local government officials, on which CKI intends to capitalise.
- its partnership and clustering approach. By entering into working relationships with local governments in emerging economies at an early stage, the Group becomes a partner in the growth of the cities, not just a mere investor in individual projects. In the process, the Group becomes an integral and essential part of the local economies, thus further enhancing the value of all the businesses which CKI already operates in such cities and surrounding areas.