Hutchison owner invests in carriers

Hutchison owner invests in carriers

In Hong Kong, 76-year-old Li Ka-shing is called Superman, or K.S. The soft-spoken, mild-mannered Li is reputed to be the richest man in Asia, with huge stakes in Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd., which had a combined market capitalization of HK$490 billion ($63 billion) at the end of May. As chairman of both companies, he has diversified their holdings into property development and real estate, hotels, telecommunications, e-commerce, energy, infrastructure projects, media and biotechnology. In ocean transportation, he is best known for his ownership of Hutchison Port Holdings Ltd., the world's biggest independent port operator.

Now he has acquired minority stakes in China Shipping Container Lines, which vies with Cosco as China's biggest liner company, and Hyundai Merchant Marine, South Korea's second-largest container ship line. The investment is raising eyebrows. After all, container shipping lines have diversified into the terminal business, but few terminal operators have done the reverse. One that did was the Holt Group, which acquired Navieras only to liquidate it in a bankruptcy sale a few years later.

Li has a history of making acquisitions to fit his widespread holdings. He tried to buy Global Crossing in 2003 to complement his telecommunications holdings, but dropped his offer when it aroused opposition in Congress. This month Li purchased about 15 percent of the shares issued by China Ship-ping in its initial public offering last week for about $15 million, with Hutchison Whampoa taking up slightly less than 10 percent, and Cheung Kong the balance. At the same time, Hutchison Whampoa agreed to buy 12 percent of Korea's financially troubled Hyundai Merchant Marine for about $78 million.

John Reeve, a consultant in Yarmouthport, Mass., said stakes in the carriers "will give HPH a captive business," he said. "With a major stake in the two lines, it will be able to direct traffic to its terminals around the world." Reeve also said that Li may believe the container shipping business has become a good investment now that it is performing better.

Li realized a handsome profit last fall when he sold his long-held 5.6 percent stake in Orient Overseas Container Line "because we felt it was the right time," said Jeremy Lau, a spokesman for Hutchison Whampoa.

But there are more strategic reasons for both new investments, said Graham Porter, a director of Seaspan Container Lines Ltd., of Vancouver, British Columbia, which has partnered with China Shipping Container Lines to buy and order new ships for it and which is also taking a substantial stake in its IPO. "Hutchison Whampoa is taking the long view in its relationship with China Shipping and the Chinese government," Porter said. "It sees China Shipping as the dominant transportation player in China."

Porter said China Shipping also has a large terminal operation that will eventually go public as a result of the Beijing government's mandate to have all the different units of its largest state-owned companies become publicly traded. Hutchison Whampoa will probably take a large stake in that IPO as well, Graham said. For this reason, it bought the largest single stake in China Shipping Container Lines as a way of cultivating "guanxi," or connections in mainland China.

Hutchison spokesman Lau called the stake in China Shipping's IPO "a strategic investment that will further enhance the tied between the two groups." Hutchison Whampoa has had a business relationship with China Shipping that dates back to 1997, when China Shipping started to call at port terminals operated by the group in mainland China, Hong Kong, South Korea, the U.K., the Netherlands and Indonesia, Lau said.

In the case of Hyundai Merchant Marine, Li seems to be positioning Hutchison Port Holdings to take advantage of the South Korean government's plans to make Korea the logistics hub for northeast Asia through construction of 22 new container berths by 2010.

Hutchison Port Holdings beat out P&O Ports in 2001 to buy out its Jaseongdae terminal in Pusan, Korea. Hutchison Port Holdings also operates a terminal in Kwangyang, Korea's second-largest container port, in partnership with Hyundai and Hanjin Shipping. "This strategic investment will further build on the synergies and links between the two companies," Lau said.