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Asia’s tycoons are seeking bargains after the coronavirus market rout

The junior Li, now chairman of CK Hutchison Holdings, CK Asset Holdings and CK Infrastructure Holdings, told analysts on March 19 that the group’s cash flow and balance sheet are strong and the impact of the virus offers “opportunities to look at new acquisitions.” He didn’t elaborate.

Biggest test

For the 55-year-old Li, the market rout has come as his biggest test since his father passed on the baton in May 2018. The now retired senior Li, 91, came to Hong Kong as a refugee but went on to transform a plastic flower business into a ports-to-telecommunications empire spanning the world.

CK Hutchison, the main flagship whose stock has tumbled 24 per cent this year, said it had HK$145 billion ($30 billion) of cash and liquid investments as of December. That is 3.6 times its short-term debt and 1.7 times its debt maturing over 2020 and 2021, according to S&P Global Ratings.

The group spent $US5.5 billion ($8.8 billion) last year acquiring assets including British pub operator Greene King, following about $US15.2 billion of purchases the previous year, according to data compiled by Bloomberg.

The chaos triggered by the disease is also posing another challenge for prospective buyers. Governments are preemptively trying to ward off predatory buying, with politicians from Australia to Spain, Italy and Germany introducing or considering stricter rules to help shield strategically important domestic companies.

CK's bid to buy Aussie pipeline operator APA Group was knocked back on national security grounds.

CK’s bid to buy Aussie pipeline operator APA Group was knocked back on national security grounds.Credit:James Davies

The regulatory barriers may make some acquisitions harder, far from the days when Chinese conglomerates such as HNA Group loaded up on debt and paid top dollar for assets from US technology firms to European aviation businesses.

“For companies like Li’s, they depend very much on acquisitions to grow, and that could be a big challenge in the long term,” said Jackie Yan, an assistant professor in management and strategy at the University of Hong Kong.

Li, however, is no stranger to rejections by overseas regulators. In 2018, Australia rejected CK’s bid to buy infrastructure giant APA Group, which operates gas pipelines, for $13 billion on national security concerns. Had it been successful, that would’ve been CK’s biggest overseas purchase.

A representative for the CK group didn’t respond to a request for comments.

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Ruined businesses

In its wake, the pandemic is likely to leave behind many ruined businesses after billions of people spent days in lock-downs and curtailed spending.

In the US, 50,000 retail stores have shut in just over a week. More than half of Britain’s firms have just three months’ cash in reserve or less, according to a survey by the British Chambers of Commerce. The International Finance Corp. said last week that it had received 315 requests for financing from companies and small- and medium-sized enterprises in 70 countries.

The MSCI Europe Consumer Discretionary Index, comprising stocks such as Adidas, Daimler and LVMH Moet Hennessy Louis Vuitton, has declined 27 per cent this year. Even a world index that represents telecommunications, utilities and energy companies — sectors that tend to demonstrate inelastic demand patterns, stable, predictable returns — has dropped 16 per cent.

Fosun International’s Chairman Guo said on March 31 that the company will leverage its worldwide resources to identify opportunities. The company had 93.6 billion yuan ($21.3 billion) in cash and equivalents last year, compared with 82.7 billion yuan of short-term debt, according to data compiled by Bloomberg. The group is into health care, insurance and hospitality.

This is a tremendous opportunity for any company with cash. If you look at what’s happened in the global market, right now cash is king.

CSLA Research’s Jonathan Galligan

Singapore’s biggest developer, CapitaLand, which bought Arlington Business Park in the UK in February, is seeking similar “counter cyclical” opportunities amid the virus downturn, its Chief Financial Officer Andrew Lim told analysts the same month.

CLSA’s Galligan also said that should the economic pain intensify, some countries may even welcome investments.

“In this market dislocation, our long-term approach means that we can hunt for mispriced companies with solid fundamentals,” Todd Barlow, head of Sydney investment holding company Washington H. Soul Pattinson, said in an earnings call last month.

Bloomberg

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