article on Richard Li in theStreet...
(fwiw, it is a shame, with all this press we are getting, that there's no way for anyone to click on a link to PCCLF quotes and info, like when reading an online article about 99.9% of all other stocks. We'd be soaring by now...)
thestreet.com
The Li Dynasty and Its Ever-Expanding
Empire
By Phil Segal
Special to TheStreet.com
3/1/00 2:45 PM ET
HONG KONG -- So much for the image of Hong Kong as the
world's freest market. It's bad enough that for years a handful of
real estate developers have conspired with the government --
which owns nearly all the land -- to keep property prices among
the highest in the world by dribbling apartments onto the market.
Now, Richard Li, vice chairman of the firm that controls Hong
Kong's second-biggest phone company, Hutchison Whampoa
(HUWHY:Nasdaq ADR - news - boards), is being allowed to
control the biggest telecom firm in the place, with no more than a
peep from antitrust regulators. This comes after a successful
leveraged buyout this week by his nascent Internet firm, Pacific
Century CyberWorks, which will take over leading fixed-line
provider Cable & Wireless HKT (HKT:NYSE ADR - news -
boards) later this year.
Li is being celebrated as Hong Kong's newest supertycoon,
overnight amassing a fortune as big as that of his father, Li
Ka-shing, who took 30 years to get this rich. The markets,
however, are not as thrilled as the Li family about the deal.
Shares of Cable & Wireless (CWP:NYSE ADR - news - boards)
-- HKT's parent -- initially fell as much as 7% when shareholders
realized they were getting a stake in a highly speculative
company, which has yet to book a penny in sales. In Hong Kong
Wednesday, HKT shares plunged 12.5%, and PCCW fell 6.6%.
Shareholders have good reason to be suspicious, because this
deal was far from strictly commercial. Despite the fact that it's
hard to see a great fit between a New Economy Internet and
satellite firm and a former monopoly laden with copper wires, it's
simply not imaginable that it could have involved anyone else.
The takeover is a stunning transaction not so much for what it
says about Asian telecoms, but for what it says about the power
of a single family. The Li family will now control about a third of
the benchmark Hang Seng Index, almost all of Hong Kong's
fixed phone lines and two-thirds of mobile phone users.
While such concentrated control would provoke the suspicion of
U.S. and European authorities, Hong Kong doesn't have such
regulators. Rather, it's the world's most advanced economy
without any form of overreaching competition law. Free trade
reigns, as nearly everything comes into the place duty free, but
setting up business to serve the 7 million inhabitants can be as
difficult as doing so in many places in the developing world.
The government is not the only party treating the Li family with
kid gloves. How many other borrowers could have arranged
Asia's largest ever syndicated loan -- expected to be between
$10 billion and $13 billion, backed by a company with acquisitive
tastes and no sales?
Richard Ferguson, telecoms analyst at Nomura, estimates that
with a net debt load of about $8 billion, Richard Li's new
company will have debt repayments of $600 million a year.
Based on operating cash flow, "they can just get by," he said.
Maybe, if the company continues to see its investments -- an
investment in U.S. incubator CMGI (CMGI:Nasdaq - news -
boards) as part of a joint venture has already brought PCCW
more than $800 million -- rise. But what if things turn ugly? And
what if interest rates keep going up, something that wrecked a
bunch of leveraged deals early last decade? "It's not a pretty
scenario," says Ferguson.
A sale of some of HKT's parts could be in the offing, of course,
perhaps from son to father. For the bankers of Hong Kong, who
Richard Li's father happens to be matters more than who
Richard Li is. One of Pacific Century's four bankers who put the
loan together, Ian Adams of Banque Nationale de Paris, said
that bankers would lend to the son only after obtaining
guarantees that "widely protect their position."
That sounds less like cash flow, and more like a comfort letter
from Li Senior.
Li Ka-shing denied a report in the South China Morning Post
that he had leaned on Bank of China to finance his son's
spectacular transaction. That may be technically true, but in
today's Hong Kong, the Li family need not ask for favors: With
the ear of the Chinese leadership and now a third of the stock
market under its control, failing to help the family get what they
want would probably turn out to be bad business. |
