Thank you for coming to the 2020 annual results presentation for CK Asset Holdings Limited. My name is Gerald Ma. I am with Simon Man, my colleague. Mr. Victor Li and Mr. Edmond Ip will join us shortly. We apologize for starting this presentation late. As you know, we actually have a double session today as we have made an additional announcement shortly after our result announcement earlier. What is going to happen is I will present our results as usual. Then we will take a few questions relating to the results from our online audience. Then we will actually go into the presentation for the acquisition and share buyback proposal that we have just announced and follow with a Q&A session for that particular proposal. Without any further delay, I am going to start the presentation right now. Okay.
Final results highlights: 32.5% decrease in underlying EPS to HKD 5.24. Dividend per share: full-year dividend HKD 1.80, a decrease of 14.3%. Hopefully, it is better than what the Street expected. Net book value per share HKD 96.02, an increase of 3%. Our underlying profit for 2020 came to HKD 19 billion, it is a 32.5% drop from 2019. Three other items worth highlighting: fair value change in terms of our real estate investment trust interest came to HKD 1 billion, a reduction. Investment property revaluation, HKD 945 million reduction, and pub-related asset impairment, just shy of HKD 1 billion, giving us the reported earnings of HKD 16.3 billion.
If you look at the chart on the top right-hand side, you can see that from a revenue perspective, the biggest drop in terms of revenue came from our property sales division, a drop of HKD 25 billion compared to last year. The biggest increase in terms of revenue is a few months of contribution from our pub division. In terms of recurrent revenue in 2020 accounted for about 48% of our total revenue.
In terms of profit contribution, again, the biggest drop from the same two divisions, HKD 2.2 billion from property sales and HKD 4 billion from the pub division, giving us a HKD 27.8 billion profit contribution by principal activities. In terms of geography, 34% of our contribution is from Hong Kong, 55% from the Mainland, 11% from the U.K. and overseas. Again, on a profit contribution perspective, Hong Kong, we did not have many bookings recorded in 2020, a HKD 16 billion drop, but a handsome booking from our Mainland division, an increase of HKD 12 billion compared to 2019. Looking into each of the divisions. Property sales, despite a 40% drop in revenue to HKD 38.67 billion, profit contribution only dropped by 11% to HKD 19.1 billion and with margins solidly higher than our historical average at 49.4%.
As I alluded to earlier, Hong Kong only provided us with HKD 3.8 billion of profit contribution, although margin was very handsome at 43.4%. China recorded a big increase from HKD 2 billion in 2019 to HKD 14.6 billion in 2020, at an amazing margin at almost 54%. HKD 606 million from overseas at a 23% margin. Major contribution from Upper West Shanghai, HKD 6.5 billion. Le Parc, Chengdu, HKD 4.68 billion. Regency Hills, HKD 719 million and Harbour Glory from Hong Kong, HKD 636 million. We still have HKD 41 billion of contracted sales not yet recognized, and about HKD 32.1 billion are scheduled for recognition in 2021. In terms of calendar year contracted sales, up to December 31st, 2020, we recorded a total contracted sales of HKD 48 billion, which is significantly higher than 2019. 2019, we had about HKD 26.7 billion, a calendar year contracted sales.
Turning to property rent, 9% drop in revenue to HKD 6.7 billion. 14% drop in profit contribution to HKD 5.9 billion. Still a very healthy margin of 87.9%, affected by understandably increase in COVID-related expenses. Major contribution, Cheung Kong Center , HKD 1.5 billion. HKD 778 million from Whampoa Garden. Hutchison Logistics Centre, HKD 602 million. A total investment property portfolio of 17.2 million sq ft . Decrease in fair value of our IP portfolio came to HKD 1.1 billion before tax, and after tax is HKD 945 million.
Cap rates are employed between 4%-8%. Hotel division, 51% drop in revenue to HKD 2 billion, and an 81% drop in profit contribution to HKD 260 million, which is actually one of few companies who are still enabled, recorded a positive number, largely because of the hard work from our daily hotel division as well as our service apartment division, being very steady.
Most of the profit, all of the profit contribution came from our Hong Kong operations. You can see that we have a total of 15,000 rooms and service suites. Breaking down occupancy for average daily hotel, the average occupancy rate was 20.1%. Average service suites occupancy rate was 86.7%. That's in pre-COVID. For service departments would be around 94%, 95%, and hotels always would be around 75%-85%. Property and project management, as steady as always, 42.5% margins giving us HKD 355 million of profit contribution. Aircraft leasing. COVID restriction obviously hit us hard this year, 12% increase in revenue and 26% decrease in profit contribution. A margin of just shy of 40%. The profit contribution included about HKD 200 million of disposal income as well as HKD 136 million and HKD 70 million of provisions and impairment of assets.
Latin America had the worst performance mainly because of Avianca, Colombia and LATAM, which both went through restructuring. We sell 125 aircraft, remaining lease term on average 4.5 years, average age 6.5 years. Pub operation, as a reminder, just shy of 2,700 pubs. Three divisions, pub company, our own self-managed pub. Pub Partners, essentially a leasing platform. Our brewing divisions with our own breweries in England and Scotland, and our own brands. 2020 revenue, a few months of opening in 2020, mainly the first two months and two months in the summer, gave us HKD 9.5 billion of revenue. Profit contribution was negative, a loss of HKD 3.4 billion. Out of that, HKD 1.6 billion was depreciation and HKD 995 million was impairment. So about HKD 2.6 billion was essentially non-cash. Infrastructure and utility asset operation.
HKD 1.37 billion of profit contribution from DUETs, which is a slight reduction from 2019 because of a lower green credit revenue and higher depreciation from EDF. For Reliance and [inaudible], HKD 1.159 billion and HKD 1.322 billion respectively, both recorded an increase from 2019, from organic growth momentum. I'll turn the next few slides to Simon. Thanks, Simon.
Thanks, Gerald. The group's interest in the real estate investment trust remain more or less the same. At the year-end day, it was 32.5% in the Hui Xian REIT, which own and manage 11.8 million sq ft of hotel, service suites, office, and retail properties on the Mainland. 26.9% in the Fortune REIT, which own and manage 3 million sq ft of retail properties in Hong Kong. 18.1% in Prosperity REIT, which own and manage 1.3 million sq ft of office, retail, industrial properties in Hong Kong. For Hui Xian, it's an associate and make a contribution of HKD 189 million to group profit for the year. For Fortune and Prosperity, the total cash distribution received in the amount of HKD 300 million has been taken up as investment income. Next, we look at the group gearing at the year-end date.
The group has a total borrowing of HKD 77.9 billion, and the maturity spread over 16 years, with HKD 22.9 billion payable within one year, HKD 37.8 billion within two to five years, and HKD 17.2 billion beyond five years. If we deduct our cash on hand, HKD 59.5 billion give us a net debt of HKD 18.4 billion. If we take the net debt to our shareholders' fund, we have a gearing ratio of 5.2%. If we take the net debt to net total capital, we have a gearing of 4.8%. Currently, our corporate ratings by Moody's is A2 stable, and by Standard & Poor's, A stable. Next, we look at our total land bank.
At the year-end date, we have 132 million sq ft, with 80 million sq ft under development, 5 million sq ft in Hong Kong, 71 million sq ft on the Mainland, and 4 million sq ft overseas. We have 17 million sq ft of investment properties, mainly 13 million sq ft in Hong Kong and 2 million sq ft on the Mainland. We have 9 million sq ft of hotel and service suite, mainly 8 million in Hong Kong and 1 million on the Mainland. For the pub properties in the U.K., we have 26 million sq ft . About the land acquisition in the last 12 months. In May 2020, we acquired the site at Anderson Road, Kwun Tong, which will give us a developable gross floor area of approximately 1 million sq ft.
In February this year, we acquired the Kai Tak Area 4E Site 2 at Kai Tak, which give us a developable gross floor area of more than 600,000 sq ft. For the Q&A section, I'll pass it back to Gerald.
Thanks, Simon. We will be taking your online questions now, and similar questions will be aggregated and asked together. The first question is that the dividend drop is less than expected. What is your dividend policy going forward?
Well, dividend policy, it is based on our long-term view of profitability and growth prospects. You can see that we feel more optimistic about the economy in the second half than in the first half of the year. That is why the drop in dividend for the final dividend, it is smaller than the interim. Also, dividend is only one way of returning value to shareholders. Another option is the new acquisition and share buyback plan that we have proposed. That is another way of returning value to shareholders. We hope by giving shareholders the choice, in the future, we have more than one way of returning value to shareholders.
Thank you, Chairman. The next question. Your gearing is very, very low. Which do you favor, increased dividends or share buyback?
Well, I am not going to bind myself, but they are not mutually exclusive. There is a possibility we can do both. But at the end of the day, the more important thing is the CK Group Assets are solid, and they are very secure assets. When the economy or the virus situation improves, the assets are of good value. Sorry, I will comment on that later on.
Another question is, what is your acquisition or M&A plan? Any particular countries you prefer?
We like countries with clear rule of law, and when it is safe for us, and safe for our colleagues to travel. We look for secure return and countries that we feel comfortable with.
The next question is, I will ask it anyway, slightly out of turn. I understand that you challenged the regulator's determination for Northumbrian Water in the U.K. earlier, and the results came out yesterday. Can you elaborate further?
I do not know whether the analysts understand the U.K. system. Some of you may understand well. There is the regulator for water, and there is also a CMA, which is Competition and Markets Authority. If you are not happy with the result of the regulator, you can appeal to CMA.
Now some people choose to take the regulator's offer. We do not think that is fair, and we appealed to the CMA. The result came out and it is better than the regulator's original proposal. It is an improvement on the return. We are glad we appealed. I do not want to use the word winning or not winning things. This is hoping we get a fair judgment, and I think the result is acceptable.
I guess that question was relevant because CKA actually indirectly has 16% of interest in Northumbrian Water through the economic interest arrangement signed a few years ago.
Well, it is also good news for the valuation of the assets contemplated in your acquisition and share buyback proposal because what the CMA has confirmed is a reasonable return for utility assets in the U.K. And that market is applicable not only to water, but has relevance to other businesses. So it confirms a fair judgment of returns going forward for all other utility businesses in U.K. too.
The next question asked by a few analysts. There has been a news report of CKA obtaining approval plans for converting hotels into other uses. What is your plan for these sites?
Well, converting to residents. Now we have got planning approval, but there is still a route we have to go through on premium and the rest. But these properties are now operating as long-term stay service suites under the hotel category. So they are also giving us good return. So we will select the best timing to convert them and provide much needed residents for the Hong Kong public.
Also many analysts are interested in the answer to this question. Overall Hong Kong office vacancy has been on the rise. Do you expect further drop in property rental contribution in 2021?
Well, there will be a lot of challenges generated by the virus and also the economy in the next couple of years. But if we are looking at our core portfolio, let us say Central. The beauty of Central is that when occupancy in Central edges a little bit higher, people from other districts generally will choose to move back to Central. When Central rent is too expensive, some people will move out of Central to the outlying area. So Central will always be filled, obviously at a slightly lower rate. But usually the vacancy problem is worse in the Class B and Class C areas. Being in Central is not only convenient, being in Central defines the reputation or the quality of the firm. So it is a face of the firm.
For a lot of companies, if there is a chance to move back to Central at an affordable price, a lot of them will. This has repeated over and over again in past cycles.
Next question. Can we have your view on the Hong Kong, I think it's residential property market right now? Do you have further plans to buy land?
Well, we always have planned to buy land. That's why we are not only buy land, it's either through auction in the rezoning that we do for our hotels and also in the conversion of agricultural land to residential office land. Those are, in my view, also buying land, even though it's not as exciting as in an auction scenario. But the purchases are just as real. I don't have a crystal ball on future property prices, but we are optimistic. We recently set two new records in our two condos at the Borrett Road property, and I think it sets a new record for Asia. Two of the penthouses.
Next, two questions on the two sites we bought recently. Anderson Road looks like a very good buy right now. What is the margin for that site?
I'm not going to disclose the exact margin because it hasn't been sold yet. All I can say is that the architectural planning for the project has been done quite well, and we managed to achieve quite a number more units than originally anticipated. So the return will be above budget. We're quite optimistic about the return on that project.
Next one is on the Kai Tak site. After your successful tender for the plots in Kai Tak, I think it's 4E2. The government announced the conversion of five additional commercial plots in Kai Tak for residential use. Are you concerned at all with the increase of supply?
No, not at all, because we know that those sites will be converted to residents. Actually, we would like the government to convert them to residents. That is a location more for residential than for offices in our opinion. It's going to be a better community. We know that that's the likely option for government to take before we purchase the Kai Tak piece of land.
We'll do two more questions before, I think that Mr. Li will have to join the CK Hutchison Q&A session. What is your plan on top reopening? Do you expect Greene King business to turn around this year?
Gerald, maybe you can answer that question.
I think based on the latest U.K. government guideline, there will be a phase reopening in April, then with full reopening hopefully with very little, if not no restrictions in June. From a financial perspective, I think in the first half it will still be difficult. We certainly are keeping our fingers crossed for a much better second half. Last question on aircraft leasing. With all the travel restrictions, what are your plans for this division, and do you have plans to buy more aircraft?
You can also answer that question, Gerald.
Okay.
I think that. Yeah.
But maybe one news that I can share. I think in your acquisition and share buyback program, later on, analysts and valuators will be looking at the valuation that we propose for the purchase of the infrastructure assets in U.K. And those are done very fairly and a deal good for CKA. But one news that would be quite relevant is that, actually it would be in the last one hour. National Grid have just announced that they have had an offer accepted by PPL for WPD. And the price in the announcement infers a RAV premium of 73%. So, that is a RAV figure that's, I think, quite a bit higher than the one in the revaluation model being used. So that shows the value of quality assets. And as I always say, CK Group has a lot of quality assets.
And at the right time, the values will be shown more obviously to our shareholders.
Thank you, Chairman.
You've seen this news, right?
Yeah. We will do a full acquisition and share buyback proposal presentation to the investors right now, and then take your online questions related to this particular proposal.
Okay.
And then—
I will leave your meeting and go to the Hutchison one.
Yes, Chairman.
Okay. Thank you.
If I can introduce, you can see on your window there is another gentleman who have joined us, Mr. Yue Seng Chiu. He is our Head of Special Projects. He is responsible as a leader for the project that we are about to discuss with you. Let's put up the presentation. Okay. Yue Seng and I will do the presentation. Mr. Ip and Simon, together with us will take your online questions. Have your questions ready, and I am already seeing many. This is the transaction overview. If you look at the top left-hand corner, the pre-transaction is the existing group shareholding and business structure. On the right is the if the proposed transaction goes through, that on the right is your post-transaction structure. The proposal comprises of two legs. First, a proposed acquisition, which is CK Asset will purchase the Target Holdcos for HKD 17 billion.
The Target Holdcos, on your top left-hand corner, if you look at infrastructure below which the Target Holdcos actually has interest in four target companies. UK Power Networks, 20%, Northumbrian Water, 20%, Wales & West Utilities, 10%, Dutch Enviro Energy, 10%. These are all very familiar assets at which we, CKA with the exception of UK Power Networks, already have an indirect interest on. Looking at the right, the post-transaction, actually, the interest on these assets, held by CKA, will go from 0%- 20% for UK Power Network. For Northumbrian Water, from 16%- 36%. Wales & West from 12%- 22%, and Dutch Enviro Energy from 14% - 24%. The purchase will be paid for via the issuance of shares at HKD 51 per share, implying a 10% premium to 10-day average closing price, and an 8.4% premium to today's closing price.
The second link is a share buyback proposal. The proposed acquisition and the share buyback proposal are interconditional to each other, so they are linked and are to be hopefully approved together. The intention of the share buyback proposal is to protect shareholders to minimize or eliminate dilution. The company, CK, will buy back and cancel up to the maximum number of shares issued for the proposed acquisition above. The way we will implement the share buyback proposal is that all qualifying shareholders are entitled to give their shares or tender their shares at HKD 51 per share, or not. It is at the option of the shareholders.
If there are any shortfall, the company will attempt to do on-market share buyback to eliminate all or part of the shortfall at a price not exceeding the offer price, not exceeding HKD 51 following the completion of the share buyback offer. The overall effect actually is simpler than what I have explained. The overall effect is to deploy HKD 17 billion of cash to acquire these cash flow-generating assets. In summary, in terms of the deal terms, looking at the top left-hand corner, proposed acquisition, HKD 17 billion. We will issue 333.3 million shares. Actually, it is nine threes, at HKD 51 per share, giving us HKD 17 billion, which again is 10% or 8.4% premium over the 10 consecutive trading days or the last trading date. The share buyback proposal, again, hopefully buying back the same number of shares at HKD 51 as well.
The qualifying shareholders who accept the share buyback offer will also be entitled to receive the final cash dividend as well as the offer price per share. We will be holding an EGM on the same day as the AGM, and the proposed acquisition can only be approved by more than 50% of votes cast by independent shareholders at the EGM, and more than 50% to pass the specific mandates. The whitewash waiver actually will, by 75% votes cast by independent shareholder. The special deal, also 50% vote cast by the independent shareholders at the AGM. The proposed share buyback offer, we need more than 50% vote cast by independent shareholders at the AGM. There are two additional elements we need to explain. In the bottom, you will see one is called guarantee of cash distribution.
The vendor, Li Ka Shing Foundation, will guarantee that the Target Holdcos companies, the four assets Target Holdcos company, will receive cash distribution of not less than HKD 910 million in aggregate, not less than, directly or indirectly for the years ending 2021 and 2022, implying the HKD 17 billion actually will be able to acquire assets that will generate a cash yield of not less than 5.35% in each of 2021 and 2022. CK A intends to distribute such amount in full to shareholders by way of dividend. The second element is the proposed dividend arrangement. Subject to the completion of the proposal, CKA will pay in dividends in respect of each of 2021 full- year and full- year 2022.
Total dividend each year will not be less than an amount equal to what we have just declared for the full-year dividend in 2020, plus the cash distribution, HKD 910 million that we talked about. Full-year dividend came to about HKD 6.648 billion. So add that to the HKD 910 million. That means in 2021 and 2022, CKA is undertaking that the total dividend will not be less than HKD 7.5 billion. The effects, if you do the math, is that the total dividend per share in respect of financial year 2021, 2022 will be higher than the total dividend per share in respect of 2020, irrespective of the number of shares bought back pursuant to the share buyback proposal.
So even if nobody decides to, because the share price has gone up so much, nobody decides to tender their shares back to the company, the dividend per share in 2021, 2022 will still be higher than the dividend per share in 2020. In terms of transaction rationale, overall there are four. This is a rare opportunity to acquire interest in a sizable, high-quality infrastructure investment portfolio without having to go through a public bidding process, with very low execution risk. Buying assets we already know, that we already know how they have been performing. Second, we will go to increase the contribution of our recurring income base and boost the stability of earnings for the group. Three, and hopefully when the circular comes out and the IFA letter comes out from the Independent Financial Advisor, it will show you and demonstrate that this is a financially accretive transaction.
And fourth, for those who are interested, is a liquidity event providing opportunities for those shareholders to monetize at a premium to prevailing market price at the time of today's announcement. Also at a higher than normal market trading volume. To go into each of the transaction rationale with a little bit more detail, I will invite our Head of Special Projects, Yue Seng, to take it forward.
Thank you, Gerald. I think to go through the rationale, the first one that Gerald mentioned, just being a very rare opportunity to acquire a quality asset. I think it goes without saying that if you look at the four assets, which should be quite familiar to you, three of which actually CK already own, and the fourth one is UK Power Networks. Really, it should be characterized by quality, the stability of earnings. It all generates recurring income base. That is what CK is going after. And also, as Gerald mentioned, this is one of those situations where we have very low, relatively, execution risk. We do not have to go through an auction process, and we do not have to go through any of the kind of competing with other bidders.
And I will also draw your attention, obviously the newcomer of the portfolio is really UK Power Networks. It is an asset that is managed by CKI, and it is one of the top electricity distribution networks in the U.K. And it is also obviously an asset that we consider a very well-performing asset within the CKI stable. And it also happens to be a direct comparable to what you see actually very recently, just an hour ago, in the wire, WPD, which was sold to National Grid.
UKPN is basically a direct comparable to WPD. And you will see in that transaction that these type of assets is very well bid. And you see the valuation, obviously, it is quite attractive in the other transaction, and you can actually work out the rough premium. So I think it is very important to draw attention to the quality of this particular portfolio. And to a situation where we actually do not have to carry too much execution risk. The next slide.
The second rationale that Gerald mentioned that we want to show here in this slide is really the stability and really the proven track record of these assets. You see from the chart, these are historical audited numbers published by these companies. You see that it is obviously very stable. There is some growth. Obviously, these assets always benefit from some inflation growth and also from our strong operational efficiency. You will see these are clear data to demonstrate the stability over the last couple of years. Next slide. On page six, you see that as a result of this transaction, we will add to our recurrent income base, which is a stated corporate strategy of CK A. That is what we are strategically trying to improve our recurring income. It will grow after the transaction from 31.3% contribution.
We will obviously get the benefit of the HKD 910 million guarantee distribution, if not more, from actual operation and also the HKD 978 million of profit that this portfolio historically generates. If you look at page seven, it is important to highlight this transaction is structured to be financially accretive. There are a couple aspects to it. Number one is that the portfolio yields at least 5.35% based on the guaranteed yield in 2021 and 2022. In this very low interest rate environment, and considering the very low risk of these assets, it is quite a big spread over a risk-free rate. Secondly, the transaction is also structured so that, as Gerald mentioned, there is a buyback. The goal of the transaction. Net-net, we are trying to acquire these assets with all cash.
In that way, the transaction hopefully will deliver accretion to the shareholders. I just want to also, on this slide, elaborate a little bit on the earlier point mentioned on the proposed dividend arrangement. To reiterate, assuming the transaction completes, the company will pay dividend in respect of 2021 and 2022. That will be at a level not less than an amount equal to this year's total dividend amount paid, which is the HKD 7.56 billion level. I am sorry, the HKD 6.6 billion level, plus the HKD 910 million. That is obviously also the guaranteed amount from the seller. As a result, if you look at kind of the increase of the dividend, which is HKD 910 million on HKD 6.6 billion, compared to the increase of share count, possible maximum increase in share count, which is 333.3 million on 3.6 billion.
One is more than 10%, one is less than 10%. It is pretty obvious that the transaction, even if we do not buy back any shares as a result of share price, as Gerald mentioned, or for whatever reason, it will still be a dividend per share, accretive transaction. It is important for us to ensure the transaction delivers a higher dividend per share to our shareholders. To echo Gerald's last point, which is the liquidity point. The transaction, as you can see, at HKD 51, the pricing of both the consideration shares as well as the buyback offer, offers a premium to the historical share price, no matter how you look at it. Importantly, it is above our 52-week high, so this will constitute a new 52-week high share price at HKD 51. It also really provides a liquidity event and exit opportunity for some investors.
You can see that the amount of shares that we will be tendering under the general offer, offers a material multiples in terms of compared to our normal trading volume. So for shareholders who want to accept or choose to accept, this is a good opportunity if they so choose. With that, I hand it back to Gerald, who will conduct some Q&A.
Keep your online questions coming. There are quite a few, so I'll be the moderator and Mr. Edmond Ip and Simon Man, Yue Seng and I will do our best to answer your questions. First question, how did you determine the fair value for the assets you're buying from LKSF? It looks like a premium to the assets compared to the most recent net asset value. Also, why not just buying back stock directly instead of through a transaction like this, when there's actually no net change in share count in the end?
For a start, we are somewhat restricted by what we can say, isn't it? I mean, the regulators won't allow us to talk beyond what we have made available in the announcement. What I can say, of course, it's an arm's length negotiation, but apart from that, I don't know what else we can talk about.
I guess we can say that it is a very much an arm's-length negotiation. CKA wants to buy recurrent income-generating assets, and the counterparty, LKSF, would like to sell, but they didn't want any cash. But if we issue shares, there will be a dilution, and so we came up with the structure to have two legs in this transaction, which is buy the acquisition, provide the vendor with what they negotiated for. At the same time, protect our shareholders by having a share buyback proposal and like this gentleman asking the question, there's no net change in share count if we are successful.
Yeah. At any rate, the IFA letter will come out later on together with the circular. I think they will set out all the reasons why we believe that it is a fair and reasonable transaction, but it would be up to the minority advisor to explain why they also think it is fair and reasonable. I think we cannot say too much at this point.
Edmond and Gerald, if you do not mind, just to add one point on the NAV. Obviously, due to listing rule and SFC requirement, we need to list out the net asset value historically. This is December 31st, 2020 in the announcement. As you can imagine, this is the holding company, SPV's NAV. That amount also includes some intercompany liabilities. When the full circular comes out, when you see through the entire balance sheet of the SPV, you will see that this net asset value under-incorporates liabilities that will otherwise be eliminated at completion. I think this is a long answer to say please bear with us in the circular, which will be published around April 26th. There will be more details on what the last asset NAV is and also the IFA's recommendation and calculation and breakdown in terms of their view on valuation.
The second question, can you elaborate a bit more on the share buyback plans and what are the considerations in setting the aggregate size of the buyback? I think Yue Seng actually effectively answers quite a bit of that. Essentially, the share buyback plan, the purpose is to hopefully eliminate any dilution, buying back exactly the same number of shares at exactly the same share price as the offer price.
That is correct. That is definitely it. On the other hand, even if we were never able to achieve the full amount, it is still an accretive transaction.
The company will. There's an on-market purchase mechanism. If there's any shortfall, if the market allows, we will try to buy back any shortfall and eliminate the dilution from the market directly.
Well, if the share price goes up, we may never be able to buy back anything. What I'm saying is even with not a single share buying back, it's still a good deal.
The next question is whether it's a direct negotiation with the Li Ka Shing Foundation. Who negotiated with the Li Ka Shing Foundation? I guess it would be the people you're seeing led by Mr. Ip.
The whole team.
The next question, we expected it. I think it's a pretty tough one. The company is buying assets from LKSF and issuing shares at HKD 51 when the NAV is almost HKD 91. Are you not issuing something way undervalued?
No, but that's a premium to the market price.
What I would say, maybe Yue Seng can add, that you cannot look at the asset acquisition as one. You have to look at it in conjunction with the share buyback proposal.
Yes.
Because they are interconditioned. One will not go without the other. You should look at the two legs as one. But if you look at the two legs as one, the net effect is we are buying the assets for a great yield, a good yield, not less than 5.35% cash yield with cash, essentially.
The way I would also ask people to think about this is, we're trying not to issue for exactly that reason, right? We are sourcing secondary shares in the market, and the market happens to value us at that discount. We didn't choose to have a share price of HKD 47.05. I mean, the market gave us that number. We are trying to source and acquire these shares from the secondary market on one hand through the buyback and really set aside the issue consideration that we'll need to satisfy our sell-out of these assets, which we obviously like very much. That's exactly why, actually, the transaction is structured this way. We don't want to just issue the shares knowing that it is at a discount to NAV.
We cannot reiterate this point enough. CK A would like to buy these assets for cash, not with shares. That's why this is a two-leg transaction. The next question. Can I check how this HKD 17 billion valuation stacks up against CKA earlier or initial acquisition when your earlier stakes were purchased?
Well, I don't know if this is a fair question. I mean, the f oundation bought these assets a few years back. Yes, of course, it's made some money from the sale, but I think most of these assets have gone up in price. Even with a profit on the part of the f oundation, the important thing is to look at what we're paying, HKD 17 billion today on these assets. I dare say, [Seng] told me, of course, if the f oundation goes out and looks for a competitive offer, most likely you'll get an even better deal.
I think these assets, actually, the initial purchase was before 2013, so it was quite a while ago. But these assets have actually grown the business a lot bigger, so it's not quite comparable. The next question, if the buyback does not succeed, again, we'll be issuing a lot of shares hugely undervalued. Oh, sorry, I think we answered that question already. Next question. Can you explain in more detail the approach CKA will take if the acquisition closes, but the buyback is not completed in full? Maybe Yue Seng do you want to elaborate that again?
Well, I think as Gerald and [inaudible] mentioned, I think first of all, the intention, if we don't achieve the full take-up, the shortfall, we'll try to acquire it on market for the next year basically until the next AGM, at a price that's obviously not more than HKD 51. So we're trying to achieve or negate the dilution impact as much as we can through an on-market buyback.
I think that's all the questions. All the other ones are very similar. So these are all the questions. Oh, there's one more now. I saw that the announcement requires 75% of independent shareholders' approval to get exempted for the general offer to all shareholders. What happens if the company cannot get 75% approval? I guess—
The deal cannot go through.
—the deal cannot go through. The entire deal collapse.
The transaction is inter-conditional, so everything needs to go through for the proposal to proceed.
The yield of this acquisition is quite appealing. Was the decision to acquire these assets also a desire to increase our earnings from developed markets, not just for return reasons? I guess what this person is trying to imply is whether we have another objective that we wanted to meet is to diversify further out into developed markets.
No, I think it's fair to say, all the time our preference has always been to invest in developed markets, where the risk is somewhat smaller and something that we're very comfortable with.
The cross-holding structure of many of your infrastructure investments are very convoluted. Is this a path to simplifying it?
Maybe you can see this as the first step.
Or at least we're doing what you like, I guess.
What the eventual outcome, nobody can tell at this stage.
If successful, will the infrastructure stakes be consolidated onto the balance sheet and income statement?
Maybe Simon can [inaudible].
Well, they are likely to be treated as a sole stake or joint venture. We will, the terms of the agreement between the existing shareholders, but it will not be consolidated because of the percentage of the shareholding will not reach the level for consolidation.
When the circular comes out, will we be able to see the look-through gearing post-transaction since HKD 17 billion of cash will be used?
Yeah.
I guess you certainly will be able to work out the look-through gearing—
Yeah.
—at that time. We will have another round with the investors, I am sure, prior to the EGM, with all the full information when the full information is available. It is from the same shareholder, a fund manager, who thinks we are issuing shares undervalued because he is saying we keep saying it is a two-leg transaction and it is one transaction. If the stock stays above HKD 51, that he is assuming the stock just goes up and stays above HKD 51 and people will not tender their shares to us and we will not be able to buy in the market, then there will be a lot of stock.
Well, maybe. At the same time, the share price has gone up. So relative to today's price or the last one year, it is still beneficial to the shareholders.
I guess if the share price goes up, that is a reflection that more people like what is happening than they are not. So I guess it can be interpreted.
Even with a larger number of shares and it still stays above 51%. HKD 51. That is good news for everybody.
Yeah.
How was HKD 51 per share determined?
Well, if it's HKD 52, you ask me the same question. It's just an arm's-length negotiation. A number is a number. That just happened to be the one that's decided.
This one is not an easy question to answer. Can you talk about the rationale behind the decision to set the level of guarantee yield? Why was the guarantee provided? I guess they're talking about the HKD 6.648 billion, which we announced as the full-year dividend for 2020 plus to HKD 910 million. Why provide that guarantee?
Well, the guarantee level is not something out of the sky. It's a level where the projects can generally return that kind of cash flow. This is just to ensure that even if something goes wrong in the next two years, that the stream of cash flow will continue to come in. I think if you look back at historical performance, these assets generally produce this kind of cash flow to the investor.
I think I would draw their attention to what we disclosed, HKD 978 million as the 2020 historical pre-tax profit that this portfolio actually generates to give people an idea in terms of where, it's organic kind of profitability. I think the guarantee provides an assurance as [Edmond] you've said on the level of distribution it can turn out. Also, to constrain that we can obviously give any sort of projections or forecasts, I mean, in this type of situation.
The other thing I would add is an extra step to show that we are walking the path, so to speak. We say we want to increase recurrent income, and generate stable earnings. The two factual numbers are HKD 910, are guaranteed by LKSF and also what we just declared as a full-year dividend. We are walking the path by saying we want to increase recurrent income, and we will pay that through to shareholder. So you will receive a stable recurrent dividend for the next two years, not less than the sum of the two numbers added together. Again, many questions on look-through gearing, I'm sure we'll deal with it when the circular comes out.
Yep.
Long-term benefit, this is the last question. What do you think is the long-term benefit is NAV per share will go up? Is that your objective? I'm not sure where he's coming from. Well, I guess NAV per share goes up if we run the business well and underlying assets perform well, profits goes up. So hopefully this is a, like I said, with a financial accretive and a business improving diversification, improving transaction.
I don't know how to describe it, but long-term objective of management is to obviously make sure the company performs well, provides much profit and NAV improvement as much as possible. I guess for the shareholders, the long range must be an increase in share price. So, what we're saying is if we perform our objectives properly, the share price will eventually go up, and hopefully that will be beneficial to all shareholders.
The last question is on pro forma NAV per share if you are not able to acquire all the stock from the shareholders, but you are able to offset by buying in the market. Essentially, there will be the same number of shares as today if we are successful in doing our maximum in terms of tender offer purchase or make up the shortfall from on-market purchase. What remains is the same number of shares as today.
Correct.
That was the last question. We have no more questions. I guess our much longer-than-usual investor presentation has come to an end.
Chair, t hank you.
For the 200+ people that have been participating and I am sure there will be many more discussion when the circular comes out. Thank you very much. We will see you. Bye.
Thank you.
Bye.
Okay, b ye.