It is said that there are three big secrets in the world: the formula for Coke, the wealth of the Queen and how much money Hutchison Whampoa, Hong Kong’s sprawling telecoms-to-retail conglomerate, makes in a year. It is good news, then, that Hutch’s plan to spin off 75 per cent of its Pearl River Delta port assets into a listed business trust in Singapore will make its accounts slightly less incomprehensible than before. But this is probably the least of the plan’s benefits.
Most significantly, it should push up the rating of the Hong Kong and Guangdong businesses of the world’s largest container-terminal operator. The group’s current enterprise value of US$81bn implies a valuation of about 12 times forward earnings before interest, tax, depreciation and amortisation, well below the 18 times assigned to Temasek-backed Mapletree Logistics Trust, which went public in Singapore in October. Singapore’s five-year-old “business trust” structure – Hong Kong lacks a direct equivalent – seems a good match for these solidly income-generating assets, allowing the trustee-manager (Hutch) to pay dividends out of operating cash flows, rather than accounting profits.
Second, the cash raised for Hutch – at least US$7bn, on Credit Suisse estimates – should come in handy. The group is not precariously geared, but its ratio of funds from operations to net debt, 15 per cent at the half-way stage last year, was about 10 percentage points below where the credit rating agencies would like it. And claims keep popping up. When Hutch helped recapitalise 35 per cent owned Husky Energy last month, it agreed to take dividends in shares rather than cash for the next two years. Better still, a cash infusion would relieve some pressure on the 3G telecoms business – yet to break even, after seven years of trying.