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KUALA LUMPUR (Feb 21): The Edge weekly in its latest edition has drawn parrallels to the the move by Asia’s richest man Li Ka-shing last month to separate his businesses into two distinct listed (property and non-property) entities, which created shareholder value through the elimination of holding company discount, to several listed companies on Bursa Malaysia making a similar move.

In its cover story this week, writers Kamarul Azhar and Esther Lee said among the listed companies on Bursa Malaysia, several could unlock value through a reorganisation of their businesses for a more efficient structure.

They quoted Astramina Advisory Sdn Bhd managing director Wong Muh Rong as saying that by flipping the assets to the holding group and swapping the shares, Li actually guides the investors and shareholders that the values of the stocks should be at that particular level.

The Edge said the move by Li, 86, had added US$2.5 billion to the combined market value of Cheung Kong (Holdings) Ltd and its 52.45% subsidiary Hutchison Whampoa Ltd. The Li Ka-Shing Unity Trust owns 39.43% of Cheung Kong. 

Under the reorganisation, the real estate assets held by Cheung Kong and Hutchison Whampoa will be folded into Cheung Kong Property Holdings, possibly making it Hong Kong’s largest listed property company.

The more internationally focused and non-property assets, which include ports, retail, energy and telecommunications, will be listed as CK Hutchison Holdings.

The reorganisation is aimed at removing the 23% discount that Cheung Kong trades at compared with its book value, which includes its holdings in Hutchison, the company said. Both have joint stakes in Chinese real estate assets, as well as hotels in Hong Kong and China.  

The Edge reported that a number of listed entities on Bursa, such as YTL Corporation Bhd (fundamental: 1.2; valuation: 1.2), Genting Bhd (fundamental: 2.10; valuation: 0.60) and Berjaya Corporation Bhd (fundamental: 0.35; valuation: 1.20), were investment holding companies without a core business of their own.

“Instead, the businesses are held by their subsidiaries, grouped either by type of business or geography,” it said.

The Edge said some investors argue that the structure whereby a holding company holds shares in multiple subsidiaries through a two-tier, or more, shareholding level is not efficient, as the value of the assets at the bottom is not likely to be fully appreciated by the market. 

However, some corporate advisers note that this conglomerate structure, whereby a holding company holds shares in several other listed and privately held firms, exists because the major shareholders want to maintain control of the group’s vast businesses, it said.

The Edge said such a structure was more prevalent in family-owned businesses, as the holding company will be where the founding family oversees and exercises management control over subsidiaries and associate companies.

The weekly said the conglomerate corporate structure came in vogue in the 1990s in Asia.

The decade saw the emergence of big conglomerates in major Asian economies, ranging from state-owned enterprises to family-owned groups, it said.

Also, as a corporation grows, it usually embarks on an expansion drive through mergers and acquisitions. Often these corporations

end up having multiple businesses, which could be grouped under a separate stand-alone entity, it said.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard dashboard_icon.
 

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