China offers escape hatch for Hong Kong tycoons
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Refiles to fix grammar in second paragraph.
By Chan Ka Sing
HONG KONG, Nov 29 (Reuters Breakingviews) -Chinese firms are dialing up their interest in Hong Kong. The $200 billion China Mobile 600941.SS has offered to buy broadband provider HKBN 1310.HK; separately, it is in talks to buy commercial property in the city too, according to Bloomberg. As other mainland giants take advantage of beaten-down valuations, Hong Kong tycoons could benefit.
State-owned China Mobile may be the world's biggest carrier by subscribers, but it has a tiny presence outside its home market. In 2005, it acquired a small mobile operator in Hong Kong but has largely kept a low profile since. That is about to change: a takeover of HKBN, which has a market value of $770 million, would give it more than a one-third share in the local broadband market.
The company's mooted interest in snapping up commercial property also looks shrewd amid slumping real estate prices in the city. Others may follow suit: state-owned conglomerate China Resources Land 1109.HK is in talks to buy a popular shopping mall from the embattled New World Development 0017.HK led by the Cheng clan, local media reported.
The prospective buyers may be heeding Beijing's calls for deeper integration among southern Chinese metropolises as part of an ambitious Greater Bay Area initiative that links cities in Guangdong province with Macau and Hong Kong. Last month, Qi Bin, currently one of the most powerful mainland officials based in Hong Kong, urged more Chinese firms to use the financial hub as a base for overseas expansions.
It helps that valuations are low. The benchmark Hang Seng Index .HIS is trading on just 9 times forward earnings, per LSEG, versus the 10-year average of over 10 times. In sectors where consolidation is overdue, such as shipping, there could be more cross-border M&A.
Take CK Hutchison 0001.HK founded by Li Ka-Shing. Ports used to account for a fifth of its revenue two decades ago, but that figure has more than halved due to competition from the mainland. Today, the telecoms-to-retail conglomerate trades at just 29% of its net asset value. State-owned China Merchants, which already operates ports in the Shenzhen, would be a logical buyer. Deals like this can offer a handy escape hatch for Li and peers.
CONTEXT NEWS
Telecommunications company HKBN said on Nov. 20 it has received a non-binding proposal from China Mobile. The Hong Kong-listed firm has a market capitalisation of $770 million.
China Mobile’s Hong Kong unit is also in talks to buy a commercial building in Hong Kong’s harbourfront that was valued at about $900 million in 2022, Bloomberg reported on Nov. 15, citing sources.
Graphic: Hong Kong's Hang Seng Index is beaten down https://reut.rs/4eST8he
Editing by Robyn Mak and Aditya Srivastav
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