How to Spend $19 Billion With Blood on the Streets

(Bloomberg Opinion) — Great investors rarely fear tumultuous times. “Buy when there is blood on the streets,” in the words of a quote usually attributed to Nathan Mayer Rothschild, the British-German banker who made a fortune from the Napoleonic wars.

Hong Kong’s greatest investor learned that lesson well. Li Ka-shing, the 96-year-old founder of CK Hutchison Holdings Ltd., turned himself from a plastic flower manufacturer into a property tycoon by purchasing real estate at fire-sale prices after the city’s 1967 riots. He pounced on utility HK Electric in the midst of a crisis in Sino-British relations in 1985, and made it the seed of one of the world’s biggest infrastructure businesses. He started building up a ports conglomerate in the Chinese mainland eight years later, when it was still largely closed off from the world in the wake of the Tiananmen Square massacre.

Right now, the conventional wisdom has decided that it’s the energy transition that is bleeding all over the road. “There is more chance of Elvis speaking” than a switch to clean energy happening, Saudi Arabian Oil Co. Chief Executive Officer Amin Nasser told the CERAWeek oil industry conference in Houston on Monday. 

Much like the apparently widespread opinion in 1815 that Napoleon’s attempted restoration was anything more than a futile last gasp, that complacent view represents a spectacular buying opportunity for those who can see more clearly.(1)

It might be hard to perceive this from the perspective of the oil industry’s pilgrimage city in Houston (although even in Texas, about half of electricity generation this year will be zero-carbon.) Look everywhere else, however — and particularly in the markets where Li has made his fortune — and the switch that’s underway is hard to miss.

Renewables and nuclear will provide every kilowatt-hour of additional electricity in the world between now and 2027, the International Energy Agency wrote last month. Global crude oil output last year was still below 2018’s figure, according to the Energy Information Administration.

Meanwhile, far from turning its back on clean energy, Europe is redoubling its efforts. Germany is planning a €500 billion ($546 billion) infrastructure fund as part of plans to remove public debt limits and allow more defense spending for Ukraine. 

“If you want to upgrade your clean-tech industries, if you want to upscale your digital infrastructure – Europe is open for business,” European Commission President Ursula von der Leyen said in a speech to the World Economic Forum in Davos, Switzerland the day after President Donald Trump’s inauguration.

Such ambitions speak to CK’s historic expertise, as well as the promise of its infrastructure unit to cut emissions in half by 2035. Right now, the Lis have money burning a hole in their pockets. The agreement last week to sell the ports business to a BlackRock Inc.-led consortium for cash proceeds in excess of $19 billion is a coup to rival any of the patriarch’s previous deals. (Though it’s not entirely clear the extent to which Li himself was driving the decision-making rather than his son, Chairman Victor Li.(2))

A savvy player has no desire to sit on such a jackpot, however. A lot of infrastructure investment is essentially interest rate arbitrage — buying assets with modest but inflation-protected cashflows, and betting that returns will improve as falling borrowing costs allow you to refinance at lower rates. That’s exactly the situation we’re facing now, as a slumping stock market and Trump’s equanimity about the prospect of a recession causes bond traders to increase their bets on a cut.

As we’ve written, China’s clean technology prowess in everything from solar panels, to batteries, to electric vehicles and charging networks is rewiring swaths of the world at astonishing speed. The next stage of Europe’s decarbonization is going to require a doubling in energy transition investments up to 2030, hitting $1 trillion a year, according to BloombergNEF. That’s an unmissable opportunity for one of the world’s most experienced players in power generation, transmission and distribution.

The Li family have spent decades navigating the choppy waters separating the East and the West, with the same deftness that sustained so many Hong Kong businesses since the city’s origins as a 19th century colonial port. With $19 billion to spend, it’s time for CK to write the next chapter in that story. 

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(1) While Nathan Mayer Rothschild made a fortune in the era, the exact nature of the trades he made (and particularly the question of whether his communications networks had given him advance knowledge of the victory at Waterloo) is still being debated two centuries later.

(2) After retiring in 2018, the elder Li retains the title of senior advisor to the group, so you’d expect him to have had a say in such a huge transaction — but formal leadership rests with Victor Li, along with his long-time lieutenant and deputy chairman Canning Fok.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

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