HONG KONG â€" Is Hong Kong’s Man of Steel getting a bit rusty?
Locals have pondered the question over the years as they have tracked the ascent and missteps of the city’s â€" and Asia’s â€" most successful businessman, the billionaire Li Ka-shing, whom the local news media have nicknamed ‘‘Superman.’’
On Wednesday, Mr. Li’s Hong Kong Electric Investments priced its initial public offering at the bottom of the marketed range, raising 24.1 billion Hong Kong dollars, or $3.1 billion. The deal had already been downsized from earlier estimates of as much as nearly $6 billion because of a lackluster reception from investors during the preliminary marketing phase.
Already, in recent months, news media outlets in Hong Kong and mainland China have been asking whether Mr. Li, 85, is selling down his investments in the region in favor of new acquisitions in Europe.
For his part, Mr. Li, who according to Forbes has a net worth of $32 billion and is the world’s eighth-richest person, has rejected such talk as a ‘‘big joke.’’
In a rare interview in November with a state-owned Chinese news media outlet, Mr. Li defended himself against his critics. ‘‘I have done business internationally for more than 30 years,’’ he told reporters from the Nanfang Media group. ‘‘It is the first time I’ve heard comments about ‘pulling out assets’ from Hong Kong.’’
‘‘Sell high and buy low is normal business behavior,’’ he added.
Indeed, Mr. Li has shown his savvy as an asset trader over a long career. Born to a poor family in the southeastern Chinese city of Chaozhou, Mr. Li was one of thousands of refugees who fled to Hong Kong after World War II.
A school dropout at the age of 12, he got a job in a plastics factory and eventually opened his own plant making plastic flowers. He began investing heavily in real estate in Hong Kong during the late 1960s, when prices bottomed out as Mao Zedong’s Cultural Revolution threatened to spill over into the colony.
Mr. Li leveraged his real estate wealth in 1979 to acquire Hutchison Whampoa, one of Hong Kong’s oldest British trading companies. He has struck a succession of blockbuster deals in the decades since, including the sale of his British mobile phone business for $15 billion in 1999 and an Indian wireless unit to Vodafone in 2007 for $11 billion.
But with his latest deal â€" the third-biggest I.P.O. by a Hong Kong company on record, according to Dealogic â€" is Mr. Li selling low instead?
Analysts said the size and pricing of the Hong Kong Electric deal, which is being packaged as a trust, had most likely been affected by investors’ concerns that interest rates are set to rise globally as the United States Federal Reserve begins to unwind its bond buying â€" the so-called tapering of quantitative easing.
One of the city’s two power suppliers, Hong Kong Electric is being spun off from Mr. Li’s Power Assets Holdings. Unlike a typical stock offering, investors in a trust value such assets based on the prospect of steady dividend incomes and the attractiveness of the yields they represent.
By pricing its offering at 5.45 dollars per unit, compared with a marketed range of 5.45 dollars to 6.30 dollars, Hong Kong Electric’s trust units represent an annualized yield of 7.2 percent for 2014, according to the company’s stock exchange filings.
But factoring in Hong Kong’s consumer price inflation of 4.3 percent in December, plus the expectation of rising interest rates because of the Fed’s actions, the returns on yield-focused investments like Hong Kong Electric begin to look less enticing.
Instead, investors have been migrating to traditional equities, pushing benchmark share indexes like the Standard & Poor’s 500-stock index to historic highs in recent weeks.
At the same time, analysts said, Mr. Li’s decision to spin off Hong Kong Electric was less a question of selling high or low, and more of selling while he could.
Hong Kong’s electricity duopoly is regulated under an agreement with the local government that grants juicy 10 percent returns on net assets to both Hong Kong Electric, which supplies electricity to Hong Kong and Lamma islands, and CLP Holdings, which supplies the rest of the territory.
The then-colonial government struck these ‘‘scheme of control’’ agreements in the 1960s and ’70s â€" when large parts of Hong Kong were still rural, with people living in ramshackle housing and lacking basic infrastructure â€" as a way to encourage power companies to expand their networks and stabilize the electricity supply to fuel the growth of manufacturing.
But Hong Kong today is a highly developed and modern city. The factories have long since moved across the border to mainland China, and electricity consumption is growing by rates in the low single digits. As a result, the high returns that are all but guaranteed to the two power companies have come under criticism locally as an unnecessary tax on the populace that lines the pockets of billionaires. (CLP is controlled by the family of Michael Kadoorie, another Hong Kong billionaire.)
In response, the Hong Kong government has been lowering the returns the electricity companies are permitted to make. The current agreement, which runs until 2018, allows for a 10 percent annual return on net fixed assets. But the government is expected to decide within the next two years whether it will seek to lower those returns or extend the deal until 2023.
Analysts said Mr. Li’s timing of the sale may not be ideal, given investor concerns over the Fed’s tapering plans. But by selling down its stake in Hong Kong Electric, to 49.9 percent from 100 percent, Mr. Li’s Power Assets is reducing its exposure to regulatory risk in Hong Kong while earning cash to add to its footprint in overseas markets, including Britain and Australia.
‘‘This is in many ways the last possible moment you can dispose of Hong Kong assets that are regulated under the scheme of control with the view that changes to the scheme are still off in the never never,’’ said Michael W. Parker, a senior analyst in Hong Kong for Sanford C. Bernstein. ‘‘The perfect way to have played this would have been to have sold the asset before the market started to price in the tapering of Q.E,’’ referring to quantitative easing.
Units in Hong Kong Electric are scheduled to begin trading in Hong Kong on Jan. 29. HSBC and Goldman Sachs are the lead underwriters on the I.P.O.
Mr. Li’s next deal could be even bigger. After failing last year to secure a satisfactory price in an attempted auction of ParknShop, his chain of supermarkets in Hong Kong and mainland China, Mr. Li’s Hutchison Whampoa has said it is considering a spinoff of the A.S. Watson Group.
A.S. Watson includes the supermarket chain but adds a global network of more than 11,000 health and beauty retail locations. Analysts have estimated such a deal could value the company at more than $20 billion, depending on the structure and timing of the sale.
