Swire can afford to be optimistic about China
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add chart.
By Chan Ka Sing
HONG KONG, Aug 15 (Reuters Breakingviews) -Swire Pacific 0019.HK is doubling down in China while others de-risk. Having survived wars and worse times over the past 200 years, the investment plans of the Anglo-Asian conglomerate are worth paying attention to.
The group, led by Chair Guy Bradley, is one of the few remaining “hongs”, or Hong Kong trading houses. The main family vehicle is the closely held John Swire & Sons in London, which in turn controlsthe $11 billion Swire Pacific. The empire spans Hong Kong shopping malls to private hospitals and Coca-Cola bottling plants in China.
Swire's Hong Kong-based airline, Cathay Pacific 0293.HK, last week outlined plans to spend more than HK$100 billion ($12.8 billion) in the next seven years on its fleet, airport lounges and more. Having just bought back the remaining preference shares issued to the Hong Kong government as part of a pandemic bailout, Cathay appears keen to repay the favour by showing more commitment in the finance hub, though that outlay is slightly lower than its annual run rate for capital expenditure in 2019.
More eye-catching is Swire's commitment to property. Under another HK$100 billion investment plan announced in 2022, Swire Properties 1972.HK will pump most of that into Hong Kong and China through 2032. That makes Swire arguably the most bullish foreign developer in the country’s slumping property market. By 2032, its commercial property portfolio in China will almost double to over 18 million square feet. In comparison, CK Asset 1113.HK, the property and infrastructure empire founded by Hong Kong’s richest man Li Ka-shing, operates less than five million square feet of investment properties in the mainland.
As written into its company name, Swire focuses on Asia Pacific, and that leaves it pretty well tied to China. Though from a stock price perspective, it is also faring better than its peers, so the group has reason to be optimistic. Swire's ordinary shares are flat over the past five years, supported by buybacks,compared to 30%-plus declines from the Hang Seng Index .HSI and for Li's flagship company CK Hutchison 0001.HK.
Trading houses such as Swire were once seen symbols of British colonial power and they trailed while local tycoons like the Li's thrived, but Beijing might now desire to support the "hongs". China is trying to court foreign investment to spur its ailing $17 trillion economy amid escalating Sino-American trade tension. Not many foreign firms dare to think big in China at this point, but few are better-placed than Swire to size up the risks and the potential returns.
CONTEXT NEWS
Swire Pacific’s Hong Kong-based aviation unit Cathay Pacific said on Aug. 7 it will invest more than HK$100 billion ($12.8 billion) over the next seven years to improve its fleet and other facilities.
($1 = 7.7887 Hong Kong dollars)
Swire Pacific is outperforming in Hong Kong https://www.reuters.com/graphics/BRV-BRV/mypmargbgpr/chart.png
Editing by Una Galani and Katrina Hamlin
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