BREAKINGVIEWS-Hong Kong slump drives Jardine out of comfort zone

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Ka Sing Chan

HONG KONG, Dec 1 (Reuters Breakingviews) - Jardine Matheson’s (JARD.SI) new chief executive, Lincoln Pan, will probably be keeping bankers busy. The former co-head of private equity at PAG takes the helm on Monday at a critical juncture: property prices in Hong Kong have plunged, prompting the once sleepy landlord to turn into a lively dealmaker. Its recent transactions mark a strategic shift at the iconic trading house, which sits on $32 billion worth of commercial properties in Hong Kong, Singapore and Shanghai. More deals under Pan should come.

The 193-year-old group rarely sells. Yet in April its flagship Hongkong Land (HKLD.SI) unit agreed to offload nine floors of prime office space in the financial hub to bourse operator Hong Kong Exchanges and Clearing (0388.HK) for $812 million. The group then announced in October it will sell 13 floors of another skyscraper overlooking the iconic Victoria Harbour to China’s biggest e-commerce firm, Alibaba (9988.HK) and Chinese financial technology company Ant Group (688688.SS) , for $925 million. That location holds particular historical significance for Jardine: it was the first plot of land sold after Hong Kong became a British colony in 1841.

The asset sales underscore a painful property slump in the city, where commercial real estate prices have halved since 2017. Last year, underlying profit at Hongkong Land, the biggest commercial landlord in Hong Kong’s central business district, plunged 44% to $412 million. Chair Ben Keswick has been quietly paving the way for change. Even before Pan’s appointment, Jardine has been adding investment experts and Chinese directors to its board over the past few years in what investors are betting will be a pivot to an investment fund model, from its current business of controlling and owning properties. The Singapore-listed conglomerate is worth $20 billion after a 61% rally this year, vastly outperforming its $11 billion rival, Swire Pacific (0019.HK) .

More sales should be on the way: In October, Jardine splashed out $500 million to buy the 12% stake it doesn’t already own in Mandarin Oriental (MOIL.SI) . That should make it easier for the parent to divest the luxury hotel group’s non-core assets including properties in Europe. A bigger move for Pan might be to spin out and list a real estate investment trust comprising of its Hong Kong, Shanghai and Singapore properties. Proceeds would help Hongkong Land achieve its goal of “recycling” up to $10 billion in capital over the next decade, which can finance more share buybacks or investment for growth. It would follow many property peers in the region, such as CK Asset (1113.HK) , who have spun out REIT structures. Pan is the first-ever Chinese CEO for Jardine, whose delisting from Hong Kong three decades ago marked a symbolic retreat from the former colony. A potential listing in the city would be the start of a conspicuous return.

CONTEXT NEWS

Lincoln Pan, former co-head of private equity for Asian investment house PAG, is chief executive officer of Jardine Matheson effective as of December 1.

Hong Kong-based conglomerate Jardine Matheson said on October 17 it will privatise Mandarin Oriental by offering to buy the 12% stake in Singapore-listed hotel unit it doesn’t already own. On the same day, Mandarin Oriental also announced that it has agreed to sell 13 floors of a prime office building in Hong Kong to Alibaba and Ant Group for $925 million.

Jardine Matheson has outperformed Swire Pacific this year

(Editing by Robyn Mak; Production by Aditya Srivastav)