Panning for gold

Legend's financial crown jewel too well hidden

Legend Holdings is offering investors access to its crown jewel - if they are willing to work for it. The $2-billion initial public offering of Lenovo's controlling shareholder gives investors a stake in private equity fund Hony Capital, plus the Chinese PC-maker, and a mash-up of other businesses. Legend's stake in Hony is the biggest prize, but its worth is obscured by stakes in other assets like dental clinics, blueberry farms and property.

At the top of its indicated price range, the Beijing-based investment group would have a valuation of $13.1 billion. Strip out Legend's 30.6 per cent stake in hardware giant Lenovo and what's left is worth just over $8 billion. The jumble of assets generated $404 million in earnings attributable to shareholders in 2014, giving them a price of around 20 times that, higher than rivals like Fosun International, CITIC Limited and Shanghai Industrial Holdings.

Key to Legend's worth is its 20 per cent stake in Hony, which managed funds of some $7 billion at the end of last year. The Chinese buyout firm has been raising its profile overseas, buying UK chain Pizza Express for $1.5 billion in July. Hony, as well as Legend's other venture capital and angel funds, delivered the bulk of the group's non-Lenovo earnings last year, making it the most significant asset after the PC-maker.

Yet disclosure on the division is scant. Hony had fully exited its investments in 23 companies last year - including a $1.3-billion sale of its stake in a pharmaceutical company in April - with a median annual return of over 20 per cent. But its current portfolio of investments is not made public. Investors will have to sift through Legend's other sprawling investments to decide if Hony is worth the hassle. Bets on a car rental company and payments firm have paid off while its fruit, liquor, chemicals and batteries business are generating losses. The real jewels are too well hidden.