Brexit's Biggest Loser: 'Superman' Li Ka-shing?

♠ Posted by Emmanuel in , at 7/02/2016 04:54:00 PM
The person on the left is now trying to mitigate commercial damage from the person on the right's loyal subjects.
Hong Kong tycoon Sir Li Ka-shing [he was a crown subject prior to the colony's 1997 handover and can therefore use this designation] is known as "Superman" for his business acumen. It has turned a high school dropout into Asia's wealthiest or second-wealthiest person [check here]. From his home base, his diversified empire has expanded to much of the rest of the world. Needless to say, while he has made some mistakes here and there, Li has seldom been wrong on big things like betting that the PRC would not destroy the economic dynamism of Hong Kong after its 1997 handover from the United Kingdom to mainland China. 

However, we have recent cause to doubt the supposed omniscience of the great Li Ka-shing. Due to his obvious familiarity with the British, the base of his European operations has always been the UK. Prior to the UK referendum on whether to stay in the EU, he was obviously keen on the country remaining in the EU. However, like many, he has been blindsided by the referendum result as his relative lack of European diversification will cost him in the event of an EU exit.

With over a third of his companies' revenues coming from the UK, pound depreciation, possible loss of EU market access, etc. are giving Li a challenge he probably did not expect:
Brexit is bad news for Li Ka-shing. Since Britain unexpectedly voted to leave the European Union, Li’s CK Hutchison Holdings Ltd. and Cheung Kong Infrastructure Holdings Ltd. have fallen more than 8 percent to be the biggest losers among companies on Hong Kong’s benchmark stock index. The city’s richest man had warned Britons against Brexit, saying it would be negative for the whole continent.

As one of the U.K.’s biggest investors, Li, 87, has a lot to lose. He operates Superdrug and Savers stores, ports, the Three phone service, as well as gas and electricity distribution. His Hong Kong-based flagship CK Hutchison generated 37 percent of its total earnings before interest and taxes from the country last year.
The numbers going forward certainly don't look promising:
"His European exposure will prove to be difficult in the coming years, both from a currency translation perspective, as well as from a fundamental earnings and growth perspective," said Sandy Mehta, chief executive officer of Hong Kong-based advisory firm Value Investment Principals Ltd.
A plunging pound is bad for CK Hutchison’s profits. Every time the currency moves by 1 percent, the company’s recurring earnings would swing 0.5 percent in the same direction, according to Benjamin Lo, an analyst at Nomura Holdings in Hong Kong. Sterling has tumbled about 10 percent in the past two days, the most on record.
Meanwhile, CK Hutchison bonds are beating a retreat.

Another knighted billionaire, Sir Richard Branson, claims Brexit has slashed the value of his companies by a third. Still, Li is particularly hard-hit because his financial reporting currency is in something other than pounds when so many of his businesses are UK-based, and will suffer as a result of already-dramatic pound depreciation. Still, he's had all these years to diversify out of the UK in anticipation of this kind of nonsense. 

At age 87, it will be interesting to see if Li is still up to guiding CK Hutchison to safe harbor one last time as the sun sets of the British Empire once and for all if things go as (un)planned.

UPDATE: See a new Bloomberg profile on the remarkable Li Ka-shing, for whom life goes on Brexit or not.