CK Hutchison rejects accusation of HKD7.4 billion in hidden debt

Billionaire Li Ka-shing’s CK Hutchison Holdings Ltd. “may be concealing” HKD57.7 billion (USD7.4 billion) of debt as a result of aggressive accounting, a Hong Kong-based researcher said on its website, allegations the company denied.

GMT Research Ltd., which uses its own proprietary accounting and corporate governance analysis system, posted the research related to accounting treatment of debt by the company and recommended avoiding the stock. CK Hutchison “rejects any innuendo or suggestion of accounting irregularity,” it said in a statement this week, adding that the lead of the GMT report “appears selective, biased and materially misleading.”

The latest annual earnings of CK Hutchison was the first reported under the watch of Victor Li, who took over the empire following last year’s retirement of the senior Li, the city’s richest man.

GMT Research analyzes balance sheets to screen companies for possible red flags, with the goal to judge if a company is overstating – or understating – its profits by exploiting accounting standards.

In its earnings report for the year ended December, CK Hutchison reported HKD120.5 billion in assets classified as held for sale, and liabilities directly associated with them at HKD77.6 billion. For the previous year, both the categories were nil. By deeming a portion of its assets as held-for-sale, CK Hutchison may be hiding HKD57.7 billion of debt, GMT Research said.

The aggressive accounting is being used to give CK Hutchison a “higher market rating and access to cheaper credit,” GMT said in the report. The company may be masking its rising debt levels with this practice, it said. MDT/Bloomberg