Hong Kong tycoon Li Ka-shing’s CK Infrastructure says Covid-19 induced ultra-low interest rates will pressure returns

CK Infrastructure, the infrastructure and energy flagship of Hong Kong tycoon Li Ka-shing’s business empire, said on Wednesday that “ultra-low” global interest rates induced by efforts to fight the coronavirus outbreak will squeeze the return rates of its projects.

“Of particular challenge to CKI will be the series of regulatory resets, which will be coming up in 2020 and over the next few years,” Victor Li Tzar-kuoi, Li’s eldest son and the company’s chairman, said in a filing to Hong Kong’s bourse. “Lower allowed returns resulting from ultra-low interest rates globally and tough stances by regulators will inevitably result in lower revenues.”

The company’s net profit for last year amounted to HK$10.5 billion (US$1.35 billion), up 0.7 per cent from 2018. Excluding foreign exchange rate fluctuations, its underlying profit grew 6 per cent, CKI said.

The US Federal Reserve on Sunday made its second surprise interest rate cut in two weeks, totalling 1.5 percentage points, to near zero, as it sought to rescue a US economy hit hard by the extreme quarantine measures required to contain the coronavirus outbreak. Lower interest rates mean lower costs of debt, which are a significant component of infrastructure developers’ operating costs. But during periods of low interest rates, lower debt costs also give governments room to ask utilities to lower their tariffs, which could reduce their revenue and rate of return.