Asian tycoons hunt for cheap assets after market rout

[HONG KONG] Asian tycoons are looking to snap up assets pummelled by the deadly coronavirus at bargain prices, but they are also facing hurdles as more governments seek to deter foreign takeovers of local firms.

Over the past three months, top executives of companies based in mainland China, Hong Kong and Singapore have told investors that they are looking for acquisitions. They include Victor Li, who took over Hong Kong's CK group from his father Li Ka-shing two years ago, and billionaire Guo Guangchang, the founder of the acquisitive Chinese conglomerate, Fosun Group.

Major stock indices in the US, Europe and the Asia-Pacific all plunged about 20 per cent in the first quarter in their worst rout since the 2008 financial crisis, making retail chains to hotels and property developers attractive to suitors. Cash-rich conglomerates like Mr Li's CK group are in a position to invest when others struggle as they are built to defend against the bad times, said Jonathan Galligan, group deputy head of research at CLSA Ltd.

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

The junior Mr 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.

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For the 55-year-old Mr Li, the market rout has come as his biggest test since his father passed on the baton in May 2018. The now retired senior Mr 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, said it had HK$145 billion (S$26.66 billion) of cash and liquid investments as at December, which 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 US$5.5 billion last year acquiring assets including British pub operator Greene King, following about US$15.2 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 policy makers from Australia to Spain, Italy and Germany introducing or considering stricter rules to help shield strategically important domestic companies.

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.

Mr Li, however, is no stranger to rejections by overseas regulators. In 2018, Australia rejected CK's bid to buy APA Group, an operator of gas pipelines, for A$13 billion (S$11.55 billion), on national security concerns. Had it been successful, that would've been CK's biggest overseas purchase.

In its wake, the pandemic is likely to leave behind many ruined businesses after billions of people spent days in lockdowns and curtailed spending. In the US, 50,000 retail stores have shut in just over a week. More than half of UK 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.

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Fosun International's chairman Mr Guo said on March 31 that the company will leverage its worldwide resources to identify opportunities. The company had 93.6 billion yuan (S$18.88 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 healthcare, insurance and hospitality.

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 Mr 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, managing director of Australia-based investment holding company Washington H Soul Pattinson & Co, said in an earnings call last month.

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