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Sun Hung Kai shares have fallen 16.5 percent since the arrest of its billionaire owners on suspicion of corruption in March. On Friday, the co-chairmen – Thomas and Raymond Kwok – were charged with bribing a former Hong Kong government official with HK$34 million ($4.4million) in return for favors. If found guilty, the executives could face a fine of up to HK$500.000 and/or a seven year jail sentence.
Barclays argues that the prolonged trial process will reduce the involvement of the company’s two key decision makers which is likely to hurt the developer’s expansion plans.
“The company is likely to become more conservatives in the nature and size of its investments – reduced China exposure, limited further development expansion,” says Lawrence.
With Sun Hung Kai’s debt levels at their highest in the company’s history, Lawrence says it will encourage a more conservative management approach and a near-term focus on debt reduction, resulting in “significantly slower” capital return.
Concerns over corporate governance will likely to weigh on the stock as well, Lawrence added. Adam Kwok, 29, the son of Thomas Kwok, and Edward Kwok, 31, the son of Raymond Kwok, were appointed as alternate directors to their fathers on Friday.
He says this “evidence of succession planning” fails to sufficiently address the concerns of minority shareholders.
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