“Buying Britain”: A total investment of more than HK $144 billion

In recent years, the U.K. demographic has held a keystone position in CK Hutchinson’s overseas enterprise. This dates back to 2004, when CK Infrastructure Holdings Limited (CKI) acquired a relatively small company Cambridge Water and entered the U.K. market for the first time. Satisfied with the business environment, the group looked for more local investment opportunities. In 2005 and 2007 CK Hutchinson respectively purchased Northern Gas Networks and Southern Water.

Following these purchases, CKI has exponentially expanded its assets in the United Kingdom. In 2010, the company acquired Seabank Power, extending its investment portfolio in the U.K. in the power generation industry a step further. A series of major acquisitions occurred afterward including: EDF Energy (with HK $70 billion) in 2010, Northumbrian Water (with HK $30.9 billion) in 2011, Wales and West Utilities in 2012, O2 Ireland in 2014, and train rental company Evershot in 2015. CKI is now one of the largest overseas investors in Britain. It supplies about 30 percent of U.K. electricity, serves 22 percent of the population through their gas distribution network, and covers water and sewage services for roughly 7 million people. According to British media, CKI is “buying out the United Kingdom.”

In 2015, the CK Hutchison group planned to acquire all issued equity in O2 UK from Spanish company Telefónica (TEF.MC) with 9.25 billion pounds in cash and a deferred profit share up to 1 billion pounds. If the deal was successful, it would have merged with Three UK to become the largest mobile telecommunications operator in the United Kingdom. The European Union rejected the deal, arguing the deal would lead to higher prices, reduce choices for British customers and hinder innovation and development of the U.K.’s internet infrastructure.

Subsequently, CK Hutchinson has gradually shifted its investment priority to other countries. It was only until June 2017 that Cheung Kong Asset Holdings (CK Asset) announced their purchase of a landmark office building in the City of London for 1 billion pounds (HK $10.54 billion). This was also the first acquisition formally confirmed by Victor Li, Li Ka-Shing’s eldest son. He took over the top role at CK Hutchison from his father in March 2018.

The acquisition was in real estate, which is quite different from their previous acquisitions – mainly in the areas of energy and public utilities. This is likely because when an overall investment scale reaches a threshold, further endeavors will be restricted by legal regulations.

Two successive acquisitions put its total Australia investment in excess of HK $100 billion

On August 13, 2018, the four listed companies of Li Ka-Shing family: CK Assets Holdings Limited (01113.HK), CK Infrastructure Holdings Limited (01038.HK), CK Hutchison Holdings (00001.HK) and Power Assets Holdings Limited (00006.HK), made a joint announcement that the CK Hutchison group consortium entered into implementation agreement to acquire Australia’s largest natural gas company APA Group on August 12, 2018.

According to the announcement, the total value of APA Group was an estimated $12.979 billion (HK $75.3 billion). Including the three previous investments in Australia, the Li Ka-Shing family has spent nearly HK $140 billion in Australia. This makes Australia the next country after Britain that has over HK $100 billion in Li family investments.

When CK Hutchinson entered the U.K. market, they invested on a smaller scale. Through these smaller transactions, they gained a better understanding of relevant local businesses and networks, as well as an increasing awareness of its regulatory framework. Once the management department grasped the local investment climate, they started to look for more acquisitions in the local market.

In contrast, CK Hutchison’s business strategy in Australia is much more aggressive and focused. Just for one deal, the 2014 acquisition of Envestra in Australia, Cheung Kong Holdings paid HK $14.1 billion. Envestra has a gas pipeline network of 2,300 kilometers in Australia. Most of the pipelines supply gas to customers in South Australia and the province of Victoria.

The recent deals in 2017 and the successful purchase of the APA Group matched the total investment quantity between Australia and the United Kingdom.

In 2017, CKI acquired Duet Group, an Australian pipeline operator and electricity distributor, for about HK $45.3 billion in cash. The assets of Duet Group include the Dampier Bunbury natural gas pipeline. It is mainly responsible for linking Northwest Coast gas reserves in Western Australia to customers in Perth and its surrounding areas. Duet Group also has a gas and power distribution network in southeastern Australia around Melbourne.

The recently concluded HK $75.3 billion deal was led by APA Group, an Australian gas pipeline company  listed on the Australian Stock Exchange (ASX:APA), and owns and operates energy assets and investments in Australia. It is Australia’s largest natural gas infrastructure business. The data show that the APA Group has more than $20 billion in energy infrastructure assets, including a gas delivery system, with 7,500 km of connected pipelines on the east coast of Australia, and about 3,500 km of natural gas pipelines in Western Australia.

It’s easy to see that the mergers and acquisitions done by CK Hutchison in Australia are all related to natural gas. After three acquisitions, CK Hutchison undoubtedly has a much stronger voice in the Australian natural gas network. However, their high-stake, high-risk business strategy is a double-edged sword, which may be something that CK Hutchison should pay attention to in its future investments.

Many deals in Canada, but an enormous sum of money in Germany

Obviously, in comparison to the United Kingdom and Australia, CK Hutchison’s investment volume in each of other countries is much smaller. There are four investments in Canada, and one in Germany. Despite this, the amount of money spent in the German investment has reached HK $41.4 billion.

CK Hutchinson’s business strategy in Canada was to test the waters with smaller investments before progressing with larger ones. In 2017 the CK Hutchinson group purchased Reliance Home Comfort (with an investment of over HK $17 billion), making it the largest acquisition in Canada in recent years. Founded in 1999 and based in Ontario, Reliance Home Comfort leases and services water heaters, furnaces and air conditioning units for about 1.7 million customers in Canada.

The deal in Germany tops the list of the investments in other countries, with a deal of HK $41.4 billion. By the end of 2016, the acquired Ista served 450,000 customers in 24 countries worldwide, and installed about 53 million meters in 12 million homes. Among them, 280,000 were German customers, with 27 million meters installed in 4.7 million apartments. In addition to Europe, Ista also has business in China, the United Arab Emirates, Russia and other emerging markets. Despite Ista’s growth as a company, its financial performance has been unsatisfactory, experiencing millions of euros in losses over several consecutive years.

Despite successive losses, Ista is still a well-managed company. The continued losses are predominantly because of its debt. If this issue is resolved in the future, then its financial data will look much better. In addition, Li Ka-Shing’s companies have spread across Europe and have strong footholds in U.K. businesses, including public utilities, real estate, railways, natural gas and electric companies. In addition, their stakes in public utilities in Australia has also been taking shape. All these enterprises are highly relevant to the intelligent instrumentation business operated by Ista, which are expected to produce significant synergies. Looking at the Ista investment independently, 4.5 billion euros may seem like a large number, but considering the entire scope of Li Ka-Shing’s companies, the profit that comes with this investment is not comparable.

Overall, from Britain to other countries, the Li family has a surefire approach to overseas investments. Their investment industries are mainly in utilities, energy and other people’s livelihood-related areas. These industries will not be profiting, but are relatively stable.

It’s also worth mentioning that, after a lapse of only two years, the Li family once again bought land in Hong Kong. On August 9, 2018, Jianfeng Investment Limited, a subsidiary of CK Asset Holdings, won the tender of a property development contract for Phase III of the Wong Chuk Hang MTR Station in the Southern District of Hong Kong Island. While the amount of money was not disclosed, Hong Kong market analysts estimated that the value of the project is around HK $36 billion. Whether or not this indicates that the Li family will increase its future investments in Hong Kong is still unknown.