Hong Kong billionaire relocating firms to Cayman


As published in the Cayman Compass – 13 January, 2015

Hong Kong tycoon Li Ka-shing, right, and his son Victor Li, at a press conference in Hong Kong on Friday, when it was announced the senior billionaire would move his base of incorporation to the Cayman Islands. – PHOTO: AP AP

One of the world’s richest men and most generous philanthropists, Li Ka-shing, regularly part of the Fortune 500 list of billionaires and Hong Kong’s wealthiest businessman, is shifting his business empire to the Cayman Islands.

Longtime owner of multinational conglomerates Cheung Kong Group and Hutchison Whampoa, Mr. Li, 86, holds vast local and overseas operations involving telecommunications, ports, Canadian oil and gas giant Husky Energy, retail outlets, infrastructure and a far-reaching international property portfolio.

Forbes magazine has pegged Mr. Li’s wealth at US$33.5 billion.

The complex restructuring of the empire, announced in a 70-page filing on Friday to the Hong Kong Stock Exchange, will consolidate Mr. Li’s holdings into two groups: non-property assets, which will be held by Cayman CKH Holding, and property assets, held by CK Property.

The reorganization, the filing said, would remove the “layered holding 
structure” between Cheung Kong and Hutchison Whampoa, eliminate cross-investments and increase transparency. The restructure comes hard on the heels of pro-democracy demonstrations in Hong Kong from late September through mid-December 2014 by students and tens of thousands of sympathizers and supporters, demanding changes to the Beijing-dominated political structure of the city of 7 million.

The “Occupy Hong Kong” movement took control of streets and entire sections of the Hong Kong Special Administrative Region, including the central and neighboring business districts.

Protesters sought universal suffrage in a choice among freely declared candidates in 2017 elections for the top post of “chief executive,” a sort of combination of governor and mayor.

While China has promised universal election rolls in those elections, leaders have limited the ballot to three candidates selected by a nominating committee appointed by Beijing.

The top post is subject to the ultimate authority of Beijing, which in 1997 assumed sovereignty of the 426-square-mile territory after 150 years of British rule.

Authorities in both Hong Kong and China ultimately dispersed the protesters, but left a strong base of support for change, including Mr. Li, who until recently enjoyed cordial relationships with a “tycoon-friendly” Chinese leadership, seeking post-1997 stability and confidence in international markets.

At a press conference describing his corporate restructure, however, Mr. Li warned of problems if “constitutional reform” were not addressed.

“Damage could be immeasurable for Hong Kong if the constitutional reform stays where it is and makes no headway,” he said, careful not to describe the consequences.

“The constitutional reform has to make a step forward. If not, all Hong Kong people, including me, will be big losers. Both you and me. “I hope the constitutional reform will pass under any circumstance. This is the first step. If there’s no first step, then where is the second step? How can we push forward democracy?”

However, he rejected widespread speculation that the Cayman Islands move was a vote of no-confidence in Hong Kong.

“People are free to say whatever they like. The fact is, my companies remain registered and listed in Hong Kong. [More than] 75 percent of the newly listed companies in Hong Kong over the past 10 years or so are incorporated in Cayman Islands, including [China’s] state-owned enterprises. Have they also lost confidence in Hong Kong? It’s not about confidence, but convenience,” Mr. Li said.

Hong Kong daily newspaper the South China Morning Post charged any “convenience” was overstated. While the Cayman Islands offers better restructuring efficiency and fewer restrictions on distribution of reserves, analysts said those were more relevant to loss-making and cash-strapped companies.

Instead, the Post claimed, the move throws into question Li’s commitment to Hong Kong and gives “extra protection as a foreign company” to his enterprises, insulating them from leadership in Hong Kong and Beijing.

Advantages in Cayman

In the Cayman Islands, dividend payments to CKH Holdings shareholders are not subject to taxation. Mr. Li’s stock-exchange document said reorganization would provide greater flexibility for making distributions to CKH Holding shareholders from the company’s reserves.

The document added that Cayman is one of the jurisdictions accepted by the Hong Kong stock exchange for issuers seeking a listing and both Cayman entities would be listed there.

In addition to making distributions to shareholders out of profits, Cayman law permits a Cayman Islands company, subject to a solvency test, to make distributions out of the share premium account.

The proposed transaction, which offers Cheung Kong shareholders one CKH Holdings share for every Cheung Kong share, and Hutchison shareholders 0.684 CKH shares for every Hutchison share, is expected to create a substantial share premium in CKH Holdings, the reorganization proposal stated.

Cheung Kong’s shares in Hong Kong traded up as much as 14 percent on Monday afternoon, while Hutchison shares jumped 12 percent.

Mr. Li, the son of a poor southern-China family who fled to Hong Kong in 1940 in the face of the Japanese invasion, left school after his father’s death and worked in a plastic-trading company. Unverifiable, if enduring popular accounts, detail his early struggles selling plastic flowers, enabling him ultimately to found Cheung Kong – Cantonese dialect for the China-spanning Yangtze River and connoting “eternity” – Holdings in the 1950s.