For some Hong Kong investors, the best way to invest is riding on the coat-tails of top tycoon Li Ka-shing on the basis that the man can do no wrong when it comes to making money. Hence, if you have got stock to shift and the market’s not buying, Li is a man worth talking to. For many companies seeking listings in Hong Kong this year, getting the Li Ka-shing investment in the initial public offering (IPO) has been crucial to the success of the deal. Get him aboard and the fan club comes running.
This seems to have been the thinking when the mainland China government was having trouble getting the IPO of PetroChina away in April this year. Despite having been more than halved in size to $2.9 billion and priced at the low end of its range, the issue, arranged by Goldman Sachs and China International Capital Corp, was proving tough to sell; oil prices had taken a dive, old economy stocks were firmly out of favour and US labour and human rights groups were doing their utmost to try and scupper the deal.
To the rescue came Li-controlled Cheung Kong and Hutchison Whampoa, along with Sun Hung Kai Properties and Chow Tai Fook Nominees (which are also controlled by prominent Hong Kong entrepreneurs). These four corporate investors together invested $350 million and agreed to a six month lock-up period, expiring 6 October. Also to the rescue came BP Amoco, which paid $578 million for a fifth of the 10% stake that was sold – a holding it cannot sell until March 2001 at the earliest.
This lock-up period for the Hong Kong companies was relaxed in mid-August to allow the investors to sell as much as 30% of their holdings. However, in order to stem a sharp slide in PetroChina’s share price after this August relaxation, Sun Hung Kai Properties, Cheung Kong and Hutchison Whampoa all denied any plans to sell their holdings – a move that led to a strong recovery in PetroChina’s share price.
True to their word, none of these corporate investors did sell in August – they waited until September. Funnily enough, it’s the only thing they didn’t announce and none of the companies involved was willing to divulge much. “We haven’t sold all the shares and we haven’t sold most of the shares … we have sold some shares – we don’t want to divulge the figures,” says Elina Chung, spokeswoman at Sun Hung Kai Properties. Chow Tai Fook and Hutchison Whampoa refused to comment, while Cheung Kong topped the lot and refused to return any of the six phone calls FinanceAsia.com made to them over the last three days.
However, stock exchange records show that two shell companies that were investors in PetroChina at the beginning of September had divested all or a portion of their stock by September 30. On September 1, Talent Point Investment Limited of 46/F Sun Hung Kai Centre in Wanchai held 608 million PetroChina shares - or 3.36% of the issued stock. By September 30 it held none.
Similarly on September 1, Terome Development of 22/F Hutchison Building in Central, Hong Kong was the proud owner of 811 million PetroChina shares - or 4.6 % of the issued stock. By September 30 that figure was reduced to 3.19% or 561 million shares.
There were no other investors in the IPO of PetroChina who took as large positions as Sun Hung Kai, Chow Tai Fook, Cheung Kong and Hutchison. Hence, these companies must be the owners of the investment vehicles. Only BP took a comparably large interest at the IPO. But the holdings of the more transparently named BP Investment China Limited of Hemel Hempstead in the UK appear unchanged on the share registry throughout the month of September.
In all fairness, the companies were under no obligation to disclose their actions; even collectively they don’t own enough PetroChina shares to have to disclose any buying or selling activity. The trouble is, the companies involved were happy to be included in PetroChina’s IPO prospectus. The importance of their involvement as shareholders was clear to all when PetroChina’s shares rebounded strongly after three of the four denied plans to sell their stakes in August following the partial relaxation of their lock-up periods .
As such, if Li or anyone else’s investments in another stock are worthy of announcement then the same should apply to their divestments. The price sensitivity of such information is clear.
