CK Infrastructure Holdings

Cheung Kong Infrastructure Holdings Limited

Hong Kong | Utilities


Company description



Cheung Kong Infrastructure Holdings Limited is a global infrastructure company that has a variety of infrastructure investments and developments in different parts of the world. The group has diversified investments in Energy Infrastructure, Transportation Infrastructure, Water Infrastructure, Waste Management, Waste-to-energy, Household Infrastructure and Infrastructure Related Businesses. Its investments and operations span Hong Kong, Mainland China, the United Kingdom, Continental Europe, Australia, New Zealand and North America.

Investment thesis


Through its portfolio of regulated assets, which are largely governed by well-established and transparent regulatory processes, Cheung Kong Infrastructure Holdings Limited (CKI) has been able to register stable returns and cash flows over the years. We believe that CKI is likely to continue building on its M&A successes in 2017, more so than its associate, Power Assets Holdings Limited (PAH). CKI possesses a broader acquisition mandate and has demonstrated a greater appetite for acquisitions over the past year.


Investment summary



·         Looking Down Under for opportunities – Cheung Kong Infrastructure Holdings Limited (CKI; stock code: 1038 HK) has formed a consortium with CK Asset Holdings Limited (CKA) and Power Assets Holdings Limited, to submit a non-binding indicative proposal to acquire APA Group. As an Australian energy company, the APA Group owns and/or operates over A$20b worth of assets across gas pipelines, storage, processing, network distribution, gas-fired and renewable energy and electricity interconnectors, and is currently listed on the Australia Securities Exchange. Under the terms of the proposal, the consortium or CKA, subject to certain conditions, has proposed to acquire 100% of the issued stapled securities in APA Group for a cash consideration of A$11.00 per stapled security. We note that the consortium has already had discussions with both the Foreign Investment Review Board (FIRB) in Australia and the Australian Competition and Consumer Commission (ACCC). In respect of the latter, the consortium has proposed a divestment package which would include APA’s interest in some pipelines and a storage facility, which we believe could soothe certain competition concerns.

·         Still some time before any potential transaction – We believe that CKI has been on the lookout for acquisition assets for some time, and the intention of adding infrastructure assets to its current portfolio is not unexpected. Having said that, while the composition of this consortium is not surprising, as all 3 companies were involved in the previous acquisition of the DUET group, what is unknown at this point is each player’s actual stake in this deal, assuming it goes through. CKI will be undertaking due diligence on a non-exclusive basis as a next step, and it could still be some time before any potential transaction is finally undertaken. Separately, we believe the recent broad market selloff has created a fairly attractive entry point for CKI. CKI’s yield spread against the US 10-year has now risen to 1.62 ppt, which is 1.2 S.D. above its 5-year mean.