Li Ka-Shing's firm makes £2.7b bet pubs will survive Brexit

[LONDON] More than a year after taking the helm of Hong Kong's biggest conglomerate from his father Li Ka-shing, Victor Li is making a US$3.3 billion bet that Brexit won't dent the value of UK pubs or the land under them.

The family's CK Asset Holdings Ltd unit agreed to pay £2.7 billion (S$4.54 billion) for Greene King plc, which operates more than 2,700 British bars, restaurants and hotels, the Hong Kong-based company said in a statement Monday. The offer is equal to 850 pence a share, a premium of about 51 per cent to Greene King's closing price on Friday.

CK Asset said "pubs will continue to be an important part of British culture and the eating and drinking out market". The conglomerate's expansion in UK pubs signals confidence that turmoil around the country's plan to exit the European Union won't sink the economy, even as it erodes the price of the country's currency and assets.

"If not for Brexit, the price would have been different," said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets. The deal fits the company's strategy to boost rental income, he said.

Greene King had lost more than one-third of its market value over the past four years prior to news of the deal, while the pound has depreciated about 18 per cent against the Hong Kong dollar since the June 2016 Brexit referendum.

The investment should generate reliable cash flow, Mr Kan said.

Greene King has an established position as well as attractive real estate assets and a resilient financial profile, CK Asset said in the statement.

The acquisition also comes as months of protests have rattled markets in Hong Kong. Mr Li Ka-shing, who has called for calm in newspaper ads, had already been diversifying away from real estate in the city in recent years. His main company, CK Hutchison Holdings Ltd, generates more than half of its earnings from Europe.

Mr Victor Li has also been shopping outside Hong Kong, said Shaun Tan, an analyst at UOB Kay Hian in Hong Kong.

The Hong Kong group has been looking into "giant acquisitions overseas" for more than a year, said Mr Tan. The deal shows CK Asset remains confident in the UK economy despite the risks of Brexit, he said.

The Greene King purchase is the group's biggest bet since the US$5.6 billion purchase of Australian power provider Duet Group in 2017, the last big acquisition completed before Mr Li Ka-shing handed the reins to his son in May 2018.

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