Hong Kong at its worst
SCMP July 13 2006
The PCCW deal is a disgrace - an example of two of the worst aspects of Hong
Kong. First, it's a case of government intervention in what should have been
determined by the free market. Second, it is yet another example of incestuous
dealing involving select major players - not least the family of tycoon Li
Ka-shing - to the disadvantage of the wider investing public. They include
the millions who indirectly own PCCW shares through the Mandatory Provident
Fund and Tracker Fund.
It is a reminder, too, of just how much investors and the public
purse have suffered from government-Li family links over the past
Would someone in government kindly explain why it is so undesirable
that PCCW not sell its telecom assets to the highest bidder? Those
who, rightly, condemned the United States for thwarting China's bid
to buy the Unocal oil company seem remarkably silent on this topic.
What, exactly, is it that makes Richard Li Tzar-kai - and now an
opaque consortium fronted by Francis Leung Pak-to - a more desirable
chief shareholder than Macquarie Bank of Australia, TPG-Newbridge
or any other bidder? Kowtowing to Beijing's will on a matter that
is entirely one for Hong Kong sets another bad precedent for its
autonomy and free market.
Ordinary investors have been deprived of the benefit of selling the
telecom assets. Further, they are now stuck with a company with a confusing
shareholding structure and no obvious direction. Nor is it clear what
will happen to its 62 per cent owned property subsidiary, Pacific Century
Premium Developments (PCPD). Will Richard Li now buy its assets? PCCW
is in no-man's land, waiting for another deal that satisfies Beijing
and a few tycoons.
Let us remind ourselves of PCCW's history. In May 1999, as dotcom
mania was gathering pace, the as-yet unheard of PCCW placed 1.1 billion
shares at just 31 cents each - mostly to those connected, in one way
or another, to the leading shareholders. With investment banks fanning
the flames of the mania and local media convinced that anything the
Li family touched would turn to gold, the price by early 2000 had reached
Supposedly expert institutions were taking share placements at $23.50.
They were putting out so-called research extolling the virtues of the
ambitiously named Network of the World (NOW), and claims that the company
was "rolling out broadband across Asia".
The hype was accompanied by fanciful value and profit projections.
Richard Li was able to use the inflated share price to acquire Cable & Wireless
HKT. He didn't quite get the market top, but he sold $3.6 billion worth
of PCCW shares at $15 a share. PCCW was not the only Li family entity
to exploit the dotcom boom to the limit. Their other rocket-ship, Tom.com,
made an equally spectacular launch, assisted by still-unexplained waivers
of stock exchange rules.
From $15, PCCW's share price plummeted to a 2002 low of 80 cents,
despite a helping hand from the government in the form of the under-the-table
Cyberport deal. That gave it a huge chunk of land for 4.5 million sq
ft of luxury residential development; in return, for the government,
it built offices, a hotel and mall, supposedly creating a centre for
cyber business. Cyberport is now part of Hong Kong folklore - so blatant
that one would hope it is not repeatable. But the younger Li is no
fool when it comes to keeping the best bits in the family. Perhaps
little noticed amid all the noise about the PCCW sale has been the
fact that the property assets have been hived off into PCPD.
It now owns not only most of Cyberport's profits and properties in
Beijing and Hong Kong, but also the rights to redevelop telephone exchange
buildings. The government originally provided the land for that purpose
under private treaty grants common to utilities. But changes in technology
mean that less space is needed. One exchange in Sheung Wan is already
being redeveloped as flats. So, hey presto, land provided for a public
utility use can now be converted to private profit!
Such is the magic of the relationship between government and the private