Hutchison Port Holdings Trust

[Behappyalways]

The Trustee-Manager ™ of HPH Trust will be Hutchison Port Holdings Management Pte Ltd (HPH Management), which will be 100% owned by HWL, not by HPH. That cuts the 20% minority shareholder of HPH, PSA International Pte Ltd (PSA) out of the management fees.
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HWL plans to initially retain only 25% of HPH Trust. If this were a HK-listed company, then it would be feasible for others to launch a takeover or to insist on board changes, particularly if they become dissatisfied with the management. It takes 50% approval of shares voted to remove a director or appoint a new one. But how do you remove the TM of a BT? Here's the catch. Section 20 of the BTA says:

"The trustee-manager of a registered business trust may be removed as the trustee-manager by the unitholders of the registered business trust only —

(a) if a resolution to remove the trustee-manager is approved by unitholders of the registered business trust holding in the aggregate not less than three-fourths of the voting rights of all the unitholders of the registered business trust who, being entitled to do so, vote in person or where proxies are allowed, by proxy present at a meeting of the unitholders of the registered business trust; and

(b) in accordance with such procedures as the Authority may prescribe."

So unitholders of HPH Trust would need 75% approval to remove HPH Management as TM. If HPH retains 25% plus one unit, then HPH Trust will be bid-proof. Even if HPH is prohibited from voting, it would be an uphill struggle to get the required majority. Short of that, unitholders will have very little say (except on connected transactions) because they will not be able to elect directors of HPH Management, unlike a listed company. In short, the only way to change the directors of a TM is to own the TM.

http://webb-site.com/articles/hutchport.asp

[wj888]

Yes it's more economical to launch a trust to retian 100% ownership instead of listing in hk as a separate entity and thus need to hold 50% ownership. And of course, push the debt to the trust and let investors take the sh*t while they retain upside potential to any valuation revisions etc etc. Reits and Trusts. Dangerous game when interest rate go up.

[Nick]

There is no gearing limit nor a minimum dividend payout ratio for a business trust. Only a recession or a credit crunch will separate the good biz trust from the poor ones. In good times, all of them will look good. Locally, only PST and to some extent Cityspring did manage to stay afloat. Even then, the DPU declined due to income retention (PST) and enlarged share float (CTS).

So it is best to give a few years before investing long term into any biz trust unless you are super bullish about its prospect. Short term IPO punt is another story altogether hehe.

[newborn1000]

Dont really like trusts..........Only ever trusted CaptialComm & Suntec

(Pun intended)

[Nick]

Just want to point out that there are debt-free companies listed in SGX investing in infrastructure assets around the world with dividend yield exceeding 5%. Logically, these companies will have a higher margin of safety than a highly geared business trust which pays out nearly all of its earnings. Does a 2-3% higher yield truly compensate the risk ?

Portek
Role: Owns and manages port in emerging countries.
Dividend Yield: 5.4%
Net Cash: S$9.8 million
Payout Policy: At least 30% of net profit.

China Merchants Pacific Holdings
Role: Own and operates toll roads in the PRC
Dividend Yield: 5.5%
Net Cash: HK$1.1 billion
Payout Policy: At least 50% of net profit.

[mrEngineer]

So unitholders of HPH Trust would need 75% approval to remove HPH Management as TM. If HPH retains 25% plus one unit, then HPH Trust will be bid-proof. Even if HPH is prohibited from voting, it would be an uphill struggle to get the required majority. Short of that, unitholders will have very little say (except on connected transactions) because they will not be able to elect directors of HPH Management, unlike a listed company. In short, the only way to change the directors of a TM is to own the TM.

Nice sharing. This is how the corporate evils are at work.

[Contrarian]

Dont really like trusts..........Only ever trusted CaptialComm & Suntec

(Pun intended)

I have not seen 1 trust which place the interest of unit holders ABOVE that of the management or focus on growth for the sake of growth and AUM.

[Nick]

I never liked the fact that virtually all of the business trust and REITs here do not have viable loan re-payment plan. Rolling over debt might work for a growth company but it negates the purpose behind any supposedly anti-cyclical trust. What's the point of making the operation anti-cycle when you embrace the twin mother of all cycles - credit cycle and the particular asset valuation cycle. It feels quite odd to me. Maybe I am odd !

A case study of the 3 shipping trust should suffice in educating any would-be investor of a business trust. The risk are many, the returns are few. The sustainability of the Trust model (and not the quality of assets) will determine whether the Trust prosper.

Note: This represents my own view. Buy and sell at your own risk.

[lonewolf]

A case study of the 3 shipping trust should suffice in educating any would-be investor of a business trust. The risk are many, the returns are few. The sustainability of the Trust model (and not the quality of assets) will determine whether the Trust prosper.

I agree with you Nick. I'm vested in Rickmers, FSL and CitySpring and is looking at a sane way to divest of all 3 this years. On paper I'm positive on Rickmers and Cityspring so divesting them now will not be so bad. But FSL is gonna hurt (just gonna swallow the lose and move on)

When I told my frens and colleagues not to be too excited about this; and the reason why I dun like the set-up, they looked at me as if I was an alien speaking in a language they dun understand.

From my causal conversation, its seems like the average man-in-the-street is super excited about this one and cannot wait to get a piece of the action.

Having said that, depending on the prevailing condition when it list, there's a good chance I may still take a stag position on it.

[mrEngineer]

Just tell them the story on how Richard Li with 25% holdings can effectively never be overthrown then perhaps they will wake up their idea. haha.