Hong Kong tycoon buys up UK electricity networks
Saturday 31 July 2010
Hong Kong's business “Superman” Li Ka-Shing is paying £5.8bn for energy giant EDF’s 100,000 miles of the UK’s electricity network.
The octogenarian Asian billionaire first approached EDF in March, beating off a range of competitors including the National Grid, the Abu Dhabi Investment Authority and several Canadian pension funds for the UK network group, which includes cables and substations supplying around eight million households and employing nearly 5,000 people.
The "irrevocable offer" from Mr Li's consortium – which includes his Cheung Kong Infrastructure holding company (CKI), Hongkong Electric, of which CKI owns 40 per cent, the Li Ka-Shing Foundation and the Li Ka-Shing (Overseas) Foundation – remains open until 24 October.
According to EDF, the offer constitutes a 27 per cent premium to the regulated asset value for the regulated electricity networks, and a multiple of 8.1 times 2010 earnings estimates for the total business.
The French group aims to present the plans for commercial cooperation with the Cheung Kong consortium in the UK to its European Works Council in early September, before going to the board for a final decision.
If the deal goes ahead, the consortium will take control of three regional electricity networks covering London, the South-east and the East of England, providing nearly a quarter of all electrical power in the UK. Alongside the regulated assets, the deal also covers EDF's non-regulated business, which has commercial contracts to deliver electricity to private sites.
CKI and HK Electric already own electricity networks in Australia, Canada, New Zealand, China and Thailand. They also own £1.67bn-worth of assets in the UK, including stakes in Cambridge Water, Southern Water and distributor Northern Gas Networks.
H L Kam, CKI's managing director, yesterday said: "CKI has always been attracted to the regulated industries in the United Kingdom due to the regulatory regime, financial infrastructure and rule of law. We are delighted to further extend our presence in this market."
As part of wider plans to expand overseas, CKI and HK Electric spent £76m last November raising their holding in Northern Gas Networks from 75 to 88 per cent.
K S Tso, the managing director of HK Electric, said: "This proposed [EDF networks] transaction, upon completion, will significantly enrich our earnings from investments outside of Hong Kong. Through these attractive assets, we will continue to diversify our profit base outside of Hong Kong and achieve growth."
EDF's UK networks business was put up for sale last October, as part of plans to raise €5bn (£4.2bn) to cut the parent group's €44bn debt pile. But the process was delayed by the five-year price review by watchdog Ofgem, which did not conclude until November.
The deal with the Cheung Kong consortium was announced yesterday, alongside first-half financial results profits showing group net income down by nearly half from last year to €1.6bn, pulled down by a provision for risks in the US. In the UK, sales dropped by 3.6 per cent to €5.6bn while earnings before interest, tax, deductions and amortisation held steady at €1.6bn.
Who is Li Ka-Shing?
Octogenarian Li Ka-Shing is a fixture in lists of the wealthy and powerful both in his native Asia and worldwide. Ranked 14th in the Forbes global rich list, the business acumen with which Mr Li amassed an estimated fortune of $21bn (£13.4bn) has seen him dubbed "Superman" in his home town of Hong Kong.
*Born in 1928 in Southeastern China, Mr Li fled to Hong Kong with his family in 1940 to escape war on the mainland. He is now the chairman of two behemoth conglomerates – Hutchison Whampoa and Cheung Kong Holdings – with interests in everything from container terminals and retail to property and energy infrastructure.
*Mr Li's rags-to-riches business career began when he left school at the age of 15 to work 16-hour days in a plastics trading company. Just seven years later – using money borrowed from friends and family – he set up his own company, Cheung Kong Industries in competition with his old employer.
*Mr Li's first big breakthrough was plastic flowers: after spotting a gap in the market, he honed his production techniques and was soon the biggest supplier in Asia.
*The next step was into the Hong Kong real-estate market, fuelled by collapsing property prices after the 1967 riots
*In 1979, Mr Li bought Hutchison Whampoa from HSBC, thereby acquiring a vast array of international interests, including the world's biggest container ports operator, a retail empire counting Superdrug and Hong Kong's best-selling bottled water amongst its assets, and a string of telecoms networks such as 3 in the UK.
*He may be a regular on rich lists and own a house in Hong Kong's swanky Deep Water Bay district, but Mr Li nonetheless has a reputation for simple living, famously sporting a $50 watch.
*He is also one of the world's greatest philanthropists. In 1980 he set up the Li Ka-Shing Foundation, which focuses on education and healthcare. So far he is estimated to have given away $1bn and in 2006 pledged to donate more than a third of his entire fortune to charity. Major personal donations so far include $128m to the University of Hong Kong faculty of medicine and $11.5m to the Singapore Management University. He was also a founder donor of Shantou University, in Guangdong, China.
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