In Hong Kong they don’t come much bigger than Sun Hung Kai Properties – literally. It is the developer of the city’s two tallest skyscrapers, which stand guard over the entrance to Victoria harbour. But after the arrest of a third member of the controlling Kwok family was announced on Friday, investors must ask this: how much does management matter in a company with such strong assets?
Walter Kwok, former chairman, is the latest person to be arrested by the anti-corruption watchdog in connection with a bribery inquiry. He has been released on bail. His brothers, Raymond and Thomas, co-chairmen of the group and with whom he has a long-running feud, were arrested and bailed late last month. None of the three has been formally charged.
Since the first arrests, Sun Hung Kai’s shares have fallen 17 per cent compared with the largely flat performance of its rivals. Estimates of net asset value a share range from HK$136 to HK$151, so the shares, at HK$92.60, trade at a hefty discount that has widened sharply since the arrests. To put that in perspective, the company’s long-term average discount to NAV is only 5 per cent, according to Barclays. Investors clearly do think, then, that management needs to be hands-on.