CK Asset Holdings Limited (1113) Earnings Call Transcript & Summary

Thank you for coming to the 2020 annual results presentation for CK Assets Holdings Limited. My name is Gerald Ma with Simon Man, my colleague. Mr. Victor Li and Mr. [indiscernible] IP will join us shortly. We apologize for starting this presentation late. As you know, we actually have a double session today as we have made an additional announcement shortly after our result announcement earlier. What's going to happen is I will present our results as usual, then we will take questions relating to the results from our online audience. Then we will actually go into the presentation for the acquisition and share buyback proposal that we have just announced and follow with a Q&A session for that particular proposal. So without any further delay, I'm going to start the presentation right now. Okay. Final results highlights, 32.5% decrease in underlying EPS to $5.24. Dividend per share full year dividend, $1.80, a decrease of 14.3%. That's hopefully, it's better than what the Street expected. Net book value per share, $96.02, an increase of 3%. Our underlying profit for 2020 came to $19 billion, it's a 32.5% drop from 2019. Three other items was highlighting, fair value change in terms of our real estate investment trust interest into $1 billion a reduction. Investment property revaluation, $945 million reduction; and pub-related assets and impairment, just shy of $1 billion, bringing -- giving us the reported earnings of $16.3 billion. If you look at the chart on the top right-hand side, you can see that from a revenue perspective, the biggest drop in terms of revenue came from our property sales division, a drop of $25 billion compared to last year. And the biggest increase in terms of revenue is a few months of contribution from our pub division. In terms of recurring revenue, in 2020, accounted for about 48% of our total revenue. In terms of profit contribution, again, the biggest drop from the same 2 divisions, $2.2 billion from property sales and $4 billion from the Pub division, giving us a $27.8 billion profit contribution by principal activities. In terms of geography: 34% of our contributions from Hongkong; 55% from the Mainland; 11% from the U.K. and overseas. Again, on a profit contribution perspective. Hong Kong, we didn't have many bookings recorded in 2020, a $16 billion drop. But a handsome booking from our Mainland division, an increase of $12 billion compared to 2019. Looking into each of the divisions. Property sales, despite a 40% drop in revenue to $38.67 billion profit contribution only dropped by 11% to $19.1 billion. And with margins solidly higher than our historical average at 49.4%. As I alluded to earlier, Hong Kong only provided us with $3.8 billion of profit contribution, although margin was very handsome at 43.4%, and China recorded a big increase from $2 billion in 2019 to $14.6 billion in 2020 at an amazing margin at almost 54%. $606 million from overseas, a 23% margin. Major contribution from Upper West Shanghai, $6.5 billion. [indiscernible] Chengdu, $4.68 billion. Regency Hill, up $719 million. And Harbour Glory from Hong Kong, $636 million. We still have $41 billion of contracted sales not yet recognized, and about $32.1 billion are scheduled for recognition in 2021. Now in terms of calendar year contracted sales, up to December 31, 2020, we recorded a total contracted sales of $48 billion, which is significantly higher than 2019. 2019, we had about $26.7 billion of calendar year contracted sales. Turning to property rental. A 9% drop in revenue to $6.7 billion, 14% drop in profit contribution to $5.9 billion, still a very healthy margin of 87.9%, affected by increased -- understandably increase in COVID-related expenses. Major contribution [indiscernible] Center, $1.5 billion; $778 million from Whampoa Garden; Hutchison Logistics Center, $602 million. And the total investment property portfolio of 17.2 million square feet. Decrease in fair value of our IP portfolio came to $1.1 billion before tax. And after tax is $945 million. Cap rates employed between 4% to 8%. Hotel division. 51% drop in revenue to $2 billion and 81% drop in profit contribution to $260 million, which is actually one of the few companies still enabled -- recorded a positive number, largely because of the hard work from our hotel division as well as the -- our service apartment division being very steady. Most of the profit -- all of the profit contribution came from our Hong Kong operations. Do you see that we have a total of 15,000 rooms and service suites breaking down occupancy for average daily hotel? The average occupancy rate was 20.1%. Average service suites occupancy rate was 86.7%. Now that's in pre COVID. For service departments will be around 94%, 95%, and hotels always would be around 75% to 85%. Property and project management as steady as always, 42.5% margins, giving us $355 million of profit contribution. Aircraft leasing, the COVID restriction obviously hit us hard this year, 12% increase -- decrease in revenue and 26% decrease in profit contribution, and a margin of just shy of 40%. Now the profit contribution included about $200 million of disposal income as well as $136 million and $70 million of provisions and impairment of assets. Latin America had the worst performance mainly because of Avianca, Colombia and Lat Am, which had -- we both way through restructuring. We sold 125 aircraft, remaining lease term on average 4.5 years, average age 6.8 years. [indiscernible] operation, as a reminder, just shy of 2,700 pubs, 3 divisions, Pub Company, our own self-managed Pub Partners, essentially a leasing platform. And our brewing divisions with our own breweries in England and Scotland, and our own brands. 2020 revenue, a few months of opening in 2020, mainly the first 2 months and the -- and 2 months in the summer gave us $9.5 billion of revenue. Profit contribution was negative, a loss of $3.4 billion. Out of that, $1.6 billion was depreciation and $995 million was impairments. So about $2.6 billion was essentially noncash. Infrastructure and utility asset operation. $1.3 billion of profit contribution from duets 1 point -- which is a slight reduction from 2019 because of a lower green credit revenue and higher depreciation from EDL. For Reliance and [indiscernible], $1.59 billion and $1.322 billion, respectively, both recorded an increase from 2019 -- from organic growth momentum. Now I'll turn the next few slides to Simon. Thanks, Simon.

Thanks, Gerald. The group's interest in the real estate investment trusts remain more or less the same. At the year-end day, it was 32.5% in the recent, which owned and managed 11.8 million square feet of hotel services, office and retail properties on the mainland. And 26.9% in the Fortune REIT, which own and manage a 3 million square feet of retail properties in Hong Kong. 18.1% in Prosperity REIT, which own and manage 1.3 million square feet of office retail industrial properties in Hong Kong. [indiscernible] an is an associate and made a contribution of $189 million to group profit for the year. For Fortune and Prosperity, the total cash distribution received in the amount of $300 million has been taken up as investment income. And then next, we look at the group gearing for -- at the year-end day, the group has a total borrowing of HKD 77.9 billion, and the maturity spread over 16 years. With HKD 22.9 billion repayable within 1 year, $37.8 billion within 2 to 5 years, and $17.2 billion beyond 5 years. And then if we deduct our cash on hand, HKD 59.5 billion give us a net debt of $18.4 billion. If we take the net debt to our shareholders' fund, we have a gearing ratio of 5.2%. And if we take the net debt to net total capital, we have a gearing of 4.8%. Currently, our corporate ratings by Moody's is A2 stable. And by Standard & Poor's, AA stable. And then next week, we look at our total land bank. We have -- at the end, we have 132 million square feet, with 80 million square feet under development, 5 million square feet in Hong Kong, 71 million square feet on the Mainland and 4 million square feet OC. And we have 17 million square feet of investment companies, mainly 13 million square feet in Hong Kong and 2 million square feet on the Mainland. And we have 9 million square feet of hotel and service switch mainly 8 million in Hong Kong and 1 million on the Mainland. And for the Pub published in the United Kingdom, we have 26 million square feet. About the land acquisition in the last 12 months. In May 2020, we acquired the Anderson Road [indiscernible], which would give us a developed growth for area of approximately 1 million square feet. And in February this year, we acquired the Kaito Area, [indiscernible], which give us a developable growth for area of more than 600,000 square feet. For the Q&A section, I'll pass it back to Gerald.

Thanks, Simon. We'll be taking your online questions now, and similar questions will be aggregated and ask together. The first question is that the dividend drop is less than expected. What is your dividend policy going forward? Well, dividend policy, it's based on our long-term view of profitability and growth prospects. So you can see that we feel more optimistic about the economy in the second half and in the first half of the year. That's why the drop in dividend for the final dividend is smaller than the interim. Also, I mean, dividend is only one way of returning value to shareholders. Another option is the new acquisition and share buyback plan that we have proposed. That is another way of returning value to shareholders. So we hope by giving shareholders the choice and in the future, we have more than one way of returning value to shareholders.

Thank you, Chairman. The next question your gearing is very, very low on which do you favor, increase dividends or share buyback?

Well, I'm not going to bind myself. But they're not mutually exclusive. So there's a possibility we can do both. But the -- at the end of the day, the more important thing is the CK Group asset are solid. And they are very secure assets. And when the economy or the virus situation improves, the assets are of good value. And sorry, I'll comment on that later on.

Okay. Another question is what is your acquisition or M&A plan, any particular countries you prefer? We like countries with a clear rule of law. And when it's safe for us to -- and safe for our colleague's travel, but we look for secure return, and countries that we feel comfortable with. The next question is -- I'll ask it anyway, slightly out of context. I understand that you challenge the regulator's determination for [indiscernible] water in the U.K. earlier. And the results came out yesterday. Can you elaborate further?

The -- I don't know whether the analysts understand the U.K. system, some of you may understand well. There is the regulator for water, and also there's a CMA, which is competition and market authority. And if you are not happy with the result of the regulator, you can appeal to CMA. Now some people choose to take the regulators offer. We don't think that's fair, and we appealed to the CMA. The result came out, and it's better than the regulator's original portfolio. It's an improvement on the return. We're glad we appeal. And so I don't want to use the word winning or not winning things. This is -- hoping we get a fair adjustment. And I think the result is acceptable.

I guess that question was relevant because CKA actually indirectly has 16% of interest in [indiscernible] through the economic interest arrangement signed a few years ago.

Whereas also, it's a good news for the valuation of the assets contemplated in your acquisition and share buyback proposal. Because the -- what the CMA has confirmed is a reasonable return for utility assets in the U.K. And that market is applicable not only to water, but as relevance to other businesses. So it confirms a fair judgment of returns going forward for all other utility businesses in U.K., too.

The next question are from a few analysts. There's been a news report on CKA obtaining approval plans for converting hotels into other users, what is your plan for these sites?

Well, converting to residents. Now we have got planning approval but there is still a route where to go through on premium and the rest. But these properties are now operating as long-term stay, service suites, under-the-hotel category. So they're also giving us good return. So we'll select the best timing to convert them and provide much-needed residents for the Hong Kong public.

Also, many analysts are interested in the answer to this question. Overall, Hong Kong office vacancy has been on the rise. Do you expect further drop in property rental contribution in 2021?

Well, there will be a lot of challenges, generally by the virus and also the economy in the next couple of years. But if we're looking at our core portfolio, let's say, Central, the beauty of Central is that when occupancy in Central edges a little bit higher. People from other districts, generally we choose to move back to Central. When Central rent is too expensive, some people will move out a Central to the outlying area. So Central will always be filled, obviously at a slightly lower rate. But usually, the vacancy problem is worse in the Class B and Class C areas. Being in Central is not only convenience, being in Central defines the reputation or the quality of the firm. So it's a face of the firm. So for a lot of companies, if there's a chance to move back to Central at an affordable price, a lot of them will. This is repeated over and over again in power cycles.

Next question. Can we have your view on the Hong Kong? I think it's a residential property market right now? And do you have further plans to buy land?

Well, we always have plan to buy land. That's why we are not only buy land, it's either through auction in the resolving that we do for our hotels. And also in the conversion of agricultural land to residential office land. Now those are, in my view, also buying land, even though it's not as exciting as in an auction scenario. But the purchase are just as real. I don't have a crystal ball on future property prices, but we are optimistic. We've recently set 2 new records in our 2 condos at the Borrett Road property. And I think it sets a new record for Asia, 2 of the penthouses.

Next 2 questions on the 2 sites that we bought recently. Anderson growth looks like a very good buy right now. What is the margin for that site?

I'm not going to disclose the exact margin because it hasn't been sold, yet. All I can say is that the architectural planning for the project hasn't done quite well, and we managed to achieve much more -- quite a number of more units than originally anticipated, so the return will be above budget. And we're quite optimistic about the return on that project.

Next one is on the [indiscernible] side. After your successful tender for the plots in [indiscernible], I think it's [ 4 8 2 ]. The government announced the conversion of 5 additional commercial blocks in Kitec for residential use, are you concerned at all with the increase of supply?

No. Not at all because we know that those sites will be converted to residents. Actually, we would like the government to convert them to residents. That is a location more for residential than for offices in our opinion. So it's going to be a better community. We know that before -- we know that that's the likely option for government to take before we purchased the [indiscernible] piece of land.

So we'll do 2 more questions before -- I think Mr. Li to join the CK Hutchison Q&A session. What is your plan on top reopening? Do you expect Green King business could turn around this year?

Gerald, maybe you can answer that question.

I think based on the latest U.K. government guideline that we have faced reopening in April. And then with full reopening, hopefully, with very little no restrictions in June. And so from a financial perspective, I think in the first half, it would still be difficult, but we certainly are keeping up in this cross for a much better second half. Last question on aircraft leasing. With all the travel restrictions, what are your plans for this division? And do you have plans to buy more aircraft.

You can also answer that question, Gerald.

Well, with 95% of our cabin narrow bodies, they are largely used for domestic flights purposes, so -- which should be the first defined bottom and recover. As for international travel will take some time, and the pace of recovery will largely be dependent on the vaccination process. In terms of buying new aircraft, it all depends on having the right return profile. I think that...

Yes. One -- maybe one news that I can share. I think in your acquisition and share buyback program, later on analysts and values will be looking at the valuation that we propose for the purchase of the infrastructure assets in U.K. and those are done very, fairly, and a deal good for CKA. But 1 news that would be quite relevant is that actually, it would be in the last 1-hour, national grid have just announced that they have had an offer accepted by PBL or WPD. And the price in the announcement and force a rough premium of 73%. So that is a refigure that's, I think, quite a bit higher than in the evaluation model being used. So that shows the -- the value of quality assets. And as I always say, CK Group has a lot of quality answers. And the -- at the right time, these -- the values will be shown more, obviously, to our shareholders. Now you've seen this news, right?

Yes. We will do a full acquisition and share buyback proposal presentation to the investors right now, and then take your online questions related to this particular proposal.

Okay. I'll leave your meeting and go to the Hutchison one.

Yes, Chairman.

Okay. Thank you.

Okay. Bye. I introduce, you can see on your window there is another gentleman who have joined us. Ms. [indiscernible] Chu. He is our Head of Special Projects. He's responsible as a leader for the project that we are about to discuss with you. So let's put up the presentation. Okay. So [indiscernible] and I will do the presentation, and then Mr. IP and Simon, together with us, we'll take your online questions. So have your questions ready, and I'm already seeing many. Now this is the transaction overview. If you look at the top left-hand corner, the pre transaction is the existing group shareholding and business structure. And on the right is the -- if the proposed transaction goes through, that on the right is your post-transaction structure. The proposal comprises of 2 legs: first, a proposed acquisition, which is -- CK will purchase the [indiscernible] holdco for $17 billion. The [indiscernible] holdco on your top left-hand corner, if you still look at infrastructure below, which the [indiscernible] holdco actually has interest in 4 target companies: U.K. Power Networks, 20%; Northumbrian Water, 20%; and Wales and West Utilities, 10%; Dutch, Ambari and [indiscernible] Energy, 10%. Now these are all very familiar assets at which we -- CKA with the exception of U.K. Power Networks already have an interest in direct interest. Looking at the right -- the post transaction, actually, the interest on these assets held by CKA will go from 0% to 20% for U.K. Power Network; from -- for Northumbrian Water from 16% to 36%; Wells and West, 12% to 22%; and Dutch and [indiscernible] Energy from 14% to 24%. The purchase will be paid for via the issuance of shares at $51 per share, implying a 10% premium to average 10-day average closing price and 8.4% premium to today's closing price. Now the second leg is a share buyback proposal, the proposed acquisition and the share buyback proposal are interconditional to each other. So they are linked, and to be hopefully to be approved together. The intention of the share buyback proposal is to protect shareholders to minimize or eliminate dilution. The company, CK, will buyback and cancel up to the maximum number of shares issued for the proposed acquisition above and the way we will implement the share buyback proposal is that all qualifying shareholders are entitled to give their shares or tender their shares at $51 per share and/or not. It's at the option of the shareholders. And if there are any shortfall, then the company will attempt to do our market share buyback to eliminate all or part of the shortfall at a price not exceeding the offer price, not exceeding $51, following the completion of the share buyback offer. Now the overall effect actually is simpler than what I've explained. The overall effect is to deploy $17 billion of cash to acquire these cash flow-generating assets. In summary, in terms of the deal terms, looking at the top left-hand corner, proposed acquisition, $17 billion. We will issue $333.3 million shares, actually, it's [ 9 3s], at $51 per share, giving us $17 billion, which again is 10% or 8.4% premium over the 10 consecutive trading days or the last trading day. And the share buyback proposal, again, hopefully, buying back as the same number of shares at $51 as well. Now the qualifying shareholders to accept the buyback offer, the share buyback offer will also be entitled to receive the final cash dividend as well as the offer price per share. We'll be holding an AGM on the same dates as the -- holding an EGM on the same day as the AGM, and the proposed acquisition can only be approved by more than 50% of votes cast by independent shareholders, independent shareholders at the AGM, and more than 50% departure specific mandates. And the whitewash waiver actually will buy 75% votes cast by independent shareholders, and a special deal, also 50% votes cast by the independent shareholders at the AGM. And the proposed share buyback offer, we need 50% -- more than 50% votes cast by independent shareholders at the AGM. There are 2 additional elements we need to explain. In the bottom you see, one is called a guarantee of cash distribution. The vendor ligating foundation will guarantee that the Target holdco companies, the 4 assets target holdco will receive cash distribution of not less than HKD 910 million in aggregate, not less than, directly or indirectly. For the years ending 2021 and 2022, implying the $17 billion, actually, we'll be able to acquire assets that will generate a cash yield of not less than 5.35% in each of 2021 and 2022. And the CKA intends to distribute such amount in full to shareholders by way of dividend. The second element is the proposed dividend arrangement, subject to the completion of the proposal. CKA will pay in dividends in respect each of 2021 full year, and full year 2022. Total dividend each year will not be less than an amount equal to what we have just declared for the full year dividend in 2020, plus the cash distribution, $910 million that we talked about. Now full year dividend came to about $6.648 billion. So add that to the $910 million, that means in 2021 and 2022, CKA is undertaking that the total dividend will not be less than HKD 7.5 billion. And the effects, if you do the math, is that the total dividend per share in respect of financial year 2021, 2022 will be higher than the total dividend per share in respect of 2020, irrespective of the number of shares bought back pursuant to the share buyback proposal. So even if nobody decides to -- because the share price has gone up so much, nobody decides to tender their shares back to the company. The dividend per share in 2021, 2022 will still be higher than the dividend per share in 2020. In terms of transaction rationale, they are -- overall, they are full. This is a rare, rare opportunity to acquire interest in a sizable, high-quality infrastructure investment portfolio without having to go through a public bidding process with very low execution risk, buying assets we already know. That we already know how they will -- they have been performing. Second, we'll go to increase the contribution of our recurring income base and boost the stability of earnings for the group. Three, and hopefully, when the circular comes out and the IFA letter comes out, from the independent financial adviser, we will show you demonstrate that this is a financial-accretive transaction. And fourth, this -- for those who are interested, is a liquidity event, providing opportunities for those shareholders to monetize at a premium to prevailing market price at the time of the -- of today's announcement also at a higher-than-normal market trading volume. For -- to go into each of the transaction rationale with a little bit more detail, I'll invite our Head of Special Projects, [indiscernible], to take it forward.

Thank you, Gerald. I think to go through the rationale, the first one that Gerald mentioned, just being a very rare opportunity to acquire a quality asset. I think it goes out saying that I think if you look at the full asset, which should be quite familiar to you, period of which actually CK already own, and the fourth one, U.K. power network. Really, it should be characterized by quality, the stability of earnings. It all generate recurring income base. That's what CK is going after. And also, as Gerald mentioned, I mean this is one of those situations where we have very low relatively execution risk. We don't have to go through our auction process, and we don't have to go through any of the kind of competing or other bidders. And I will also draw your attention. Obviously, the newcomer of the portfolio is really U.K. Power Networks. It's an asset that's managed by CPI. And it's one of the top electricity distribution network in the U.K. And it's also -- obviously, an asset that we consider a very well-performing asset within CKA's table. And it also happens to be a direct comparable to what you'll see actually very recently, just an hour ago in a wire, WPD, which was sold to national grid. This is -- UKPN is basically a direct comparable to WPT, and you'll see in that transaction that bestel asset is very, very well bid. And you see the valuation. Obviously, it's quite attractive and the other transaction, and you can actually work out at the [indiscernible] premium. So I think it's very important to draw your attention to the quality of this particular portfolio. And to the -- to a situation where we actually don't have to carry too much execution. The next slide. We second rationale that Gerald mentioned that we want to show here in this slide is really the stability and really the proven track record of these assets you see from the chart, right? These are historical audited numbers published by these companies. And you see that it's obviously very, very stable. It's -- there's some growth. Obviously, these assets always benefit from some inflation growth and also from our strong operational efficiency. So you'll see these are clear data to demonstrate the stability over the last couple of years. Next slide. I think on Page 6, right? You see that as a result of this transaction, we will add to our recurrent income base, which is a stated corporate strategy of CKA. That's what we are strategically trying to improve our recurring income. It will grow after the transaction from 31.3% contribution. We'll obviously get the benefit of the $910 million guarantee distribution, if not more, from actual operations. And also the $978 million of profit that this portfolio historically generated. So if you look at Page 7. It is important to highlight, this transaction is structured to be financially accretive. There's a couple of aspects to it. Number one is that the portfolio yields at least 5.35% based on the guarantee yield in 2021 and 2022. And so in this very low interest rate environment, it's -- and considering the very low-risk of these assets. It is quite a big spread over risk-free rate. Secondly, the transaction is also structured so that -- as Gerald mentioned, there is a buyback, right, the goal of the transaction. So that net-net, right, we're trying to achieve. We're trying to acquire these assets with all cash. So in that way, the transaction, hopefully, will deliver accretion to the shareholders. Now I just want to also on this slide, elaborate a little bit on the earlier point mention on the proposed dividend arrangement and to reiterate, assuming the transaction completes, right, the company will pay dividend in respect of 2021 and '22, that will be at a level not less than an amount equal to this share total dividend amount paid, which is the $7.56 billion level -- sorry, the $6.6 billion level, plus the $910 million. That is obviously also the guaranteed amount from the seller. So as a result, if you look at kind of the increase of the dividend, which is $910 million on $6.6 billion compared to the increase of share count possible maximum increase in share count, which is $333.3 million on $3.6 billion. One is more than 10%, what is less than 10%. It's pretty obvious that the transaction, even if we don't buy back any shares as a result of share price, as Gerald mentioned, for whatever reason, it will still be a dividend per share accretive transaction. So it is important for us to ensure the transaction delivers a higher dividend per share to our shareholders. So [indiscernible] last point, which is the liquidity point, the transaction, as you can see, at $51, the pricing of all the consideration shares as well as the buyback offer offers a premium to the historical share price, no matter how you look at it. Importantly, it's about our 52-week high. So this will constitute a new 52-week high share price at $51. It also really provides a liquidity event and exit opportunity for some investors. You can see that the amount of shares that we will be tendering under the general offer, offers a material multiples in terms of compared to our normal trading volume. So for shareholders who want to excel, we choose to accept, this is a good opportunity if they so choose. So with that, I'll hand it back to Gerald who will conduct some Q&A.

Few online questions coming, there are quite a few. So I'll be the moderator, and Mr. [indiscernible] and Simon Man, Yusen and I will do our best to answer your questions. First question, how did you determine the fair value of -- or the assets you're buying from LKSS? It looks like a premium to the assets -- most premium to the assets to the -- compared to the most recent net asset value. Also, why not just buying back stock directly instead of through a transaction like this, when there's actually no net change in share count in the end.

For start, we are somewhat restricted by what we can say, isn't it? I mean the regulators won't allow us to talk beyond what we have made available in the announcement. What I can say, both this is [indiscernible] negotiation. But apart from that, I don't know what else we can talk about.

I guess we can say that it is a very much [indiscernible] negotiation. CKA wants to buy recurring income-generating assets. And the counterparty health [indiscernible] would like to sell, but they didn't. They didn't want any cash. But if we issue shares, there will be a dilution. And so we came up with the structure to have 2 [indiscernible] in this transaction, which is by the acquisition, provide the vendor with what they've negotiated for. At the same time, protect shareholders by having a share buyback proposal and like this gentleman asking the question, there's no net change in share count should -- if we are successful.

Yes. At any rate, the IFA, let's say, will come out later on. And together with the circular, and I think they will settle out all the reasons why we believe it's a fair reasonable transaction, and but it will be up to a minority adviser to explain why they also think it's very reasonable. I think you can't say too much at this point.

And then [indiscernible], you don't mind, just to add one point on the NAV. So obviously, due to listing ROU and SFA requirement, we need to list out the net asset value historically because of December 31, 2020, announcement. But as you can imagine, this is the holding company, SPVs NAV. So that amount also includes some inter-company liabilities. So when the full circular comes out, it will -- when you see through the entire balance sheet of the SPV, you will see that this net asset value under and corporate liabilities that will otherwise be eliminated at completion. So I think the long -- this is a long answer to say at least bear with us in the circular, which will be published around April 26. There will be more details on what the loss asset, NAVs, and also the IFAs recommendation and calculation and breakdown in terms of evaluation.

The second question, can you elaborate a bit more on the share buyback plans? And what are the considerations in setting the aggregate size of the buyback? I think you said actually effectively answered quite a bit of that. Essentially, the share buyback plan, the purpose is to hopefully eliminate any dilution, buying back exactly the same number of shares exactly the same the same share price as the offer price.

That's correct. That's definitely. But on the other hand, even if we never able to achieve the full amount, it's still an accretive transaction.

And also, the company will -- there's an on-market purchase mechanism. If there's any shortfall, we will try to -- if the market allows you to try to buy back any shortfall and eliminate the dilution from the market directly.

Well, if the share price goes up, we may even -- you may never be able to buy anything. So what I'm saying is even with not a single share buying back is still a good deal.

The next question is whether it's a direct negotiation with the leasing foundation fund appreciated with the [indiscernible] foundation. I guess it with the people you're seeing led by Mr. IP.

The whole team.

The next question, we expected it. I think it's a pretty tough one. The company is buying assets from LKSS and issuing shares at $51 when the NAV is almost $91. Are you not issuing something way undervalued?

That's a premium to the marketplace.

What I would say maybe [indiscernible] can add that if you look at -- you cannot look at the asset acquisition in S1, you have to look at it in conjunction with the share buyback proposal. If you look at -- because they are inter condition, one will not go without the other. If you -- so you should look at the 2 legs as one. But if you look at the 2 legs as one, the net effect is we are buying the assets for a great yield a good yield, not less than 5.35% cash yield with cash, essentially.

So the way I would also ask people to think about this is really, we're try not to issue for exactly that reason, right? But we are sourcing secondary shares in the market, and the market happens to value us at that discount. And we didn't choose to have a share price of 47.05 I mean the market gave us that number. So we are trying to source and acquire these shares from the check and secondary market on one hand through the buyback and really satisfy the issue consideration that we'll need to satisfy our sell-out of these assets, which we obviously like very much. So that's exactly why actually transaction structure this way. We don't want to just issue the shares, knowing that it is at a discount to NAV.

So we cannot reiterate this point enough. It is -- we are essentially -- CKA would like to buy these assets for cash not with shares. That's why this is a 2 [indiscernible] transaction. The next question, can I check whether how this $17 billion valuation stacks up against CKA earlier or initial acquisition when your earlier stakes would purchase?

Well, I don't know if this is a fair question. I mean the foundation bought these assets a few years back. Yes, of course, is [indiscernible] some money from the field. But it's -- I think most of these assets have gone up in place. So even with a profit on the part of the foundation, the important thing is to look at what we're paying, $70 billion today on these assets. I did say if we can [indiscernible], of course, if translation goes out and look for a competitive offer, most likely, you'll get an even better deal.

I think these assets actually the foundation -- the initial purchase was in -- before 2013. So it was quite a while ago. These assets have actually grown the business a lot bigger. So it's not quite comparable. The next question, if the buyback does not succeed -- again, we'll be issuing a lot of shares, hugely undervalue. Oh, sorry, I think we answered that question already. Next question can you explain in more detail the approach CKA will take if the acquisition closes, but the buyback is not completed in full. Maybe you're saying if you do want to elaborate that again.

Well, I think as Gerald and [indiscernible] mentioned, I think, first of all, the intention, if the tick we can -- we don't achieve the full tick up, the shortfall, we'll try to acquire it on market for the next year, basically, until the next AGM, at a price that's obviously not more than $51. So we're trying to achieve or negate the dilution impact as much as we can through our market buyback.

I think that's all the questions, all the other ones are very similar. So these are all the questions. Oh, there's one more now. And so that the announcement required -- requires 75% of independent shareholders' approval to get exempted for the general offer to all shareholders. What happens if the company cannot get 75% approval. I guess...

The deal cannot go through.

The deal cannot go through. The entire deal collapse.

The transaction is intake additional. So everything needs to go through for the proposal to proceed. The yield of this plant acquisition is quite appealing. But was the decision to acquire these assets, also a desire to increase our earnings from developed markets, not just for return reasons? Or I guess, the -- what this person is trying to imply is whether we have another objective that we wanted to meet is to diversify further out into developed markets.

No. I think it's fair to say all the time, our strategy is to invest in our preference has always been to invest in developed markets where the risk is somewhat smaller and something that we're very comfortable with.

The cross-holding structure of many of your infrastructure investments are very convoluted. Is this a path to simplifying.

Maybe you can say this is the first step.

At least, we're doing what you like, I guess.

What the eventual outcome [indiscernible] tell at this stage.

Will the infrastructure 6, if successful, will these -- the infrastructure 6 be consolidated onto the balance sheet and income statement.

Maybe Simon can answer.

Well, it's likely to be treated as [indiscernible] or joint venture. We will -- the -- in terms of the existing the agreement between the existing shareholders, but it will not be consolidated because of the percentage of the shareholding, will not reach the level for consolidation.

Well, when the circular comes out, will we be able to see the look-through gearing post transactions since $17 billion of cash will be used.

Yes.

I guess you certainly will be able to work out the look-through a hearing that. But we'll have another round with the investors, I'm sure, prior to the EGM with all the full information -- when full information is available. It's from the same shareholder, a fund manager, who we think we are issuing shares on the value because he's saying -- we keep saying it's a 2 late transaction and it's one transaction. But if the stock stays above $51 that he's assuming the stock just goes up and stays about $51, and we won't be able to -- people won't tender their shares to us, and we won't be able to buy in the market then there will be a lot of stock.

Well, maybe, but at the same time, the share price has gone up. So relative to today's price over the last 1 year, is still beneficial to the shareholders.

Well, I guess, if the share price goes up, there's a reflection that more people like what's happening, then they're not. So I guess [indiscernible]

Even with a larger number of shares. And it still stays above 51% -- $51. That's good news for everybody.

Yes. How is $51 per share [indiscernible].

Well, it was $52, you asked me the same question. So it's just -- now I'm saying negotiation a number is a number. That just happened to be the one, right, decided.

This one is not an easy question to answer. Can you talk about the rationale behind the decision to set the level of guarantee yield? Why was a guarantee provided? I guess they're talking about the $6.648 billion, which we announced as the full year dividend for 2020 plus the $910 million, why provide that guarantee?

And -- well, it's the guarantee level is not something out of the sky. It's a level where the projects can generally return that kind of cash flow. But this is just to ensure that even if something goes wrong in the next 2 years, that the stream of cash flow will continue to come in. But it's not -- I think if you look back at historical performance, these assets generally produce this kind of cash flow to the investment.

I think I would draw their attention to what we disclosed, $978 million as the 2020 historical pretax profit that this portfolio actually generates to give people an idea in terms of where it's organic kind of profitability. And I think a guarantee provides an assurance, as [indiscernible] said, on the level of kind of distribution it can turn out. And also, the constraint that we can obviously give any sort of projections or forecast, I mean, this type of situation.

Well, the other thing I would add is, it's an extra step to show that we are we are walking the path, so to speak, we say we want to increase recurrent income and generate stable earnings. And we -- the 2 factual numbers is $910 million guarantee by [indiscernible] and also what we just declared as a full year dividend. We are walking the path by saying we want to increase recurring income, and we will pay that through to the shareholder. So you will receive a stable recurring dividend for the next 2 years, not less than the number -- the some of the 2 numbers added together. Again, many questions on look through gearing. So I'm sure we'll deal with it when the circular comes out.

Yes.

Long-term benefit, this is the last question. What is -- what do you think the long-term benefit is NAV per share will go up. Is that your objective? I'm not sure where it's coming from. Well, I guess, NAV per share goes up. If you -- if we run the business well, and underlying assets perform well, profit goes up. So hopefully, this is -- like I said, with a financial accretive and business improving diversification, improving transaction.

I think -- I don't know how to describe it. But long-term objective of management to obviously make sure the company performs well. We buy much profit an NAV improvement as much as possible. But I guess, for the shareholders, the long rage must be an increase in share price. So what we're seeing is we perform our objectives, properly, the share price will eventually go up. And hopefully, that will be beneficial to our shareholders.

The next -- the last question is on pro forma NAV per share if you are able to -- if you're not able to acquire all the stock from the shareholders, but you are able to offset by buying in the market. So essentially, there will be the same number of shares as today if we are if we are successful in doing our maximum in terms of tender offer, purchased or make up the shortfall from all market purchase. What remains is the same number of shares as today.

Correct.

That was the last question. We have no more questions. So I guess the -- our much longer-than-usual investor presentation has come to an end.

Thank you.

For the 200-plus people that have been participating, and I'm sure there will be made more discussion when the circular comes up. Thank you very much. Well, thank you. Bye.

Thank you. Bye