Cheung Kong Holdings has agreed to buy a portfolio of aircraft for about $1.9 billion, heralding its entry into the plane leasing business as it seeks to diversify its interests beyond Hong Kong and China.
In an exchange filing on Tuesday, the company controlled by Hong Kong tycoon Li Ka-shing said the deal with GE Aviation among others reflected the group's "commitment to nurture new growth through diversification and globalisation."
Li Ka-shing-controlled companies such as Hutchison Whampoa and Cheung Kong Infrastructure, as well as Cheung Kong Holdings, have been paring their exposure to mainland China and Hong Kong and picking up overseas assets ranging from utility companies to car parks.
"Across the entire group, they are going beyond the traditional sectors and branching out," a source familiar with the group told FinanceAsia.
The push to diversify comes as protestors in Hong Kong are locked in a stalemate with the government over the right to elect leaders that are not pre-approved by Beijing.
Popular sentiment has also shifted against the territory's tycoons. Back in 2013, hundreds of port workers demonstrated outside Cheung Kong Centre to demand better pay.
Change is gonna come
"They are switched on," the source familiar with the group said. "They see what is coming in terms of the concentration of power in Hong Kong and the social issues. They are much more conscious of being a target among the younger generation," he said.
Analysts expect Cheung Kong Holdings to keep looking for other capital-intensive assets outside of Hong Kong and away from property.
"[They have] a lot of capital to put to work so you have to find more opportunities," Hong Kong-based CIMB analyst Andrew Lawrence told FinanceAsia. "I don’t think those opportunities are available in Hong Kong, Secondly, I think they are calling the cycle."
Cheung Kong was among the bidders for British rolling stock company Porterbrook. The conglomerate in August also said it had submitted a non-binding proposal for Terra Firma Capital Partners' aircraft leasing arm Awas.
In its filing, Cheung Kong said the aircraft leasing business will generate "long-term steady income for the group."
As part of the deal, Cheung Kong agreed to pay $714 million to buy 18 aircraft from GE Aviation and a total of $491 million for 10 aircraft from Bank of China Aviation. It also agreed to buy 14 aircraft from Jackson Square Aviation, a Delaware company for $584.2 million.
Mitsubishi joint venture
Cheung Kong also agreed with Japan's Mitsubishi Corp. to establish a new joint venture dedicated to aircraft leasing. Cheung Kong owns 60% and Mitsubishi owns 40% of the joint venture.
According to the terms of the deal MC Aviation Partners, which is wholly owned by Mitsubishi, will transfer a seed portfolio of 15 aircraft to the joint venture out of the 100 it already owns or manages.
The joint venture will enter into a servicing agreement with MC Aviation Partners that will recommend deals to enable the purchase of further aircraft assets, according to a release by Mitsubishi.
The joint venture will also raise capital from a syndication of financial institutions.
Morgan Stanley advised Cheung Kong Holdings and Citi advised Mitsubishi.