Hong Kong’s Wheelock to exit struggling media business
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A subsidiary of Hong Kong-listed developer Wheelock has decided to end funding for its pay TV operator in a bid to focus on property development, leaving the fate of its loss-making business up in the air.
Wharf Holdings, a 58%-owned subsidiary of Wheelock, announced on Thursday that it had stopped discussions with potential buyers on the sale of i-Cable Communications, as no deal had been reached to shed the struggling unit.
Its current funding commitments to i-Cable, including a loan of 400 million Hong Kong dollars ($51.5 million), will also not be extended upon expiry. Wharf’s committed capital for i-Cable stood at HK$18 million at the end of December.
“The chance of a turnaround for the business in the short- and medium term is low,” said Wharf Chairman and Managing Director Stephen Ng Tin-hoi at an earnings briefing on Thursday, justifying the group’s decision.
I-Cable, which is 74% owned by Wharf, has been operating in the red in the past eight to nine years. Its net loss widened to HK$313 million last year on weak advertising revenue and growing competition in the TV industry. The station’s paid-TV license will expire by the end of May but it has received government approval for a new license until 2029. It is preparing to launch free-to-air TV operations in May.
“Accepting the new license will be another 12-year commitment and we’ll have to see,” said Ng, without commenting directly on the possible closure of the two-decade-old TV operator. Meanwhile, the board of i-Cable announced on the same day it would hire a financial consultant to explore alternative funding sources or advise on business reorganization.
Television Broadcasts and Asia Television, long Hong Kong’s only free-to-air broadcasters, both attracted a number of bidders over the past year, which might suggest more bidders could yet emerge for i-Cable. Unlike i-Cable, both offer a buyer a deep library of old programs, but ATV nevertheless shut down last year. This week, TLG Movie and Entertainment, which had signaled a bid for a 29.9% stake in TVB, withdrew its offer.
Wharf’s exit from the media business began with the sale of its fixed-line telecommunications unit, Wharf T&T, for HK$9.5 billion last year.
“Accepting the new license will be another 12-year commitment and we’ll have to see,”
The group will also study the possibility of spinning off some of its office and retail assets in Hong Kong and mainland China. This could be achieved by means of a distribution in specie to Wharf’s shareholders. “A simple segregation may provide investors with more and better choice,” it said in the earnings statement.
“It’s just the beginning of our study,” said Ng, stressing that Wharf has no specific timeline for the proposal. “Neither do we have an expected outcome. We might not do it eventually.” Asked whether the spinoff would be in the form of a real estate investment trust, Ng said: “This can be considered but we have to decide whether we will have a separate listing first.”
After the transaction, Wharf would remain a conglomerate with businesses spanning property development and logistics.
The proposal of a spinoff came on the back of Wharf’s resilient earnings from its investment properties amid a retail downturn. Its net profit surged 34% on the year to HK$21.4 billion last year.
Revenue rose 14% to HK$46.6 billion, helped by stronger property sales and nearly 6% growth in rental income from its two flagship malls — Causeway Bay’s Times Square and Harbour City in Tsim Sha Tsui — in prime shopping districts in Hong Kong.
On the mainland, Wharf reported modest 1% growth in rental revenue from its malls in the southwestern city of Chengdu to offices in Shanghai. It will roll out new malls and hotel projects in Chongqing as well as Changsha in central China in the second half of the year.
Wharf’s shares closed 0.48% lower at HK$62.25 on Thursday, before the results were announced. Its stock has advanced 21% this year, against the Hang Seng Index’s 6.8% gain.
However, some analysts are skeptical about a full recovery in Hong Kong’s retail market this year. China’s wider economic slowdown and Hong Kong’s peg to a stronger U.S. dollar has continued to discourage mainland tourist spending in the territory.
Last year, retail sales in Hong Kong suffered the worst drop in two decades and were down nearly 12% from the 2013 peak. “It’s quite impossible for a sharp rebound in 2017,” wrote Alfred Lau, a property analyst at Bank of Communications International in a note on Monday, expressing caution about the rental growth of retail properties. “We prefer developers with office assets rather than retail properties.”
Questions & Answers
Q.What is the primary reason Wheelock's subsidiary is ending funding for its pay TV operator?
What is the primary reason Wheelock's subsidiary is ending funding for its pay TV operator?
Wharf Holdings, Wheelock's subsidiary, is ending funding to focus on property development. The chairman stated the chance of a turnaround for the struggling media business in the short- and medium-term is low, making it a logical exit strategy for the group.
Q.Has i-Cable Communications found a buyer for its struggling business?
Has i-Cable Communications found a buyer for its struggling business?
No, Wharf Holdings announced it has stopped discussions with potential buyers as no deal had been reached. Its current funding commitments, including a HK$400 million loan, will not be extended upon expiry.
Q.What is Wharf Holdings considering doing with some of its property assets?
What is Wharf Holdings considering doing with some of its property assets?
Wharf is studying the possibility of spinning off some of its office and retail assets in Hong Kong and mainland China. This could be achieved through a distribution in specie to its shareholders, providing more choice to investors.
Q.Why is the future outlook for Hong Kong's retail market uncertain despite Wharf's strong earnings?
Why is the future outlook for Hong Kong's retail market uncertain despite Wharf's strong earnings?
Analysts are sceptical about a full recovery due to China’s economic slowdown and Hong Kong’s peg to a stronger US dollar, which discourages mainland tourist spending. Retail sales in Hong Kong suffered their worst drop in two decades last year.
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