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Morgan Stanley gains from Hong Kong mergers

Morgan Stanley climbed to fourth place in providing financial advice in Asia outside Japan from 11th in the first half of the year as Hong Kong's property mergers more than doubled.

New World Group, Hang Lung Properties Ltd and Henderson Land Development Co, struggling to weather slumping real-estate prices and cut debt, shuffled assets to bolster their main businesses.

Property transactions totaled US$6.7 billion this year, or 21 percent of all Hong Kong deals, up from US$3 billion, or 17.5 percent in the same period of last year, Bloomberg data shows.

"These conglomerates in Hong Kong are in a tricky position because they are in one of the greatest centers of global deflation," said David Roche, chief executive of London-based researcher, Independent Strategy. "That means the prices of everything they produce and of all these buildings they bought go down, while the value of debts stays the same."

Reorganizations within groups such as New World, Sun Hung Kai Properties Ltd and Hang Lung helped lift the value of real-estate deals in Asia by 18 percent this year, a period in which overall mergers dropped 14 percent, Bloomberg data shows. They helped Morgan Stanley -- which was in second place behind J.P. Morgan Chase for the whole of last year, according to Bloomberg data -- gain lost ground.

Hong Kong's two economic slumps in five years drove property prices down 60 percent from their 1997 peak.

The reshuffles, which aim to give developers more profit to pay debt, may also benefit investors by driving shares higher.

Shares of New World Infrastructure Ltd jumped more than 40 percent on Oct. 22, it's biggest one-day gain, after it said it would raise HK$10.2 billion (US$1.3 billion) from asset sales to cut debt.

"Modern stock markets want companies to focus on core competencies," said Anthony Green, J.P. Morgan Chase & Co's head of real-estate investment banking in the Asia-Pacific region. "The world doesn't want these companies that have businesses ranging from shampoo to shopping malls."

In Asia outside Japan, real-estate companies were involved in more than 883 transactions -- the most active industry -- worth about US$18.3 billion to Nov. 28, up from US$13.4 billion in the same period last year, Bloomberg data shows.

Goldman Sachs Group Inc. is the leading adviser on takeovers, followed by Salomon Smith Barney and J.P. Morgan. Goldman advised China Mobile (Hong Kong) Ltd on a US$10.2 billion purchase of phone networks from its parent.

Morgan Stanley leads the way in arranging property company reorganizations in Hong Kong. N.M. Rothschild & Sons Ltd, which jumped to 12th this year from 30th last year, has also benefited as a financial adviser -- doing fairness valuations -- for New World Development Ltd, Hang Lung and Shougang Concord International Enterprises Co.

"This is the beginning of a new trend in Asia where complicated, sometimes family-controlled companies or groups of companies are being sorted out," said Harry Van Dyke, Morgan Stanley's head of mergers and acquisitions in Asia.

In Hong Kong, where the economy is expected to expand 1.5 percent this year after growing 0.6 percent last year, reshuffles may have helped banks advance in league tables more than they bolstered share prices.

"People are starting to focus very intently on what they should be doing for the long term," said Kenneth Courtis, Goldman Sachs Group Inc's vice chairman in Asia. "You're going to see companies becoming fit, trimming down to their essentials, their fighting weight."

Henderson Land, controlled by tycoon Lee Shau-kee, paid US$704 million to buy the outstanding shares in its investment unit in June. Its shares lost more than a fifth of their value this year, double the 11 percent decline in the Hang Seng Property Index.

Hang Lung Properties, part of Ronnie Chan's financial services and hotels group, bought Grand Hotel Holdings Ltd from its parent in August. Its stock is down 7.5 percent this year.

Now the company is seeking shareholder approval to shuffle HK$21.2 billion (US$2.7 billion) of assets, selling pieces of its unprofitable toll road and power unit to its money-making China ports business.
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