Article on Ziasun->INTERNET COMPANIES Losing Momentum
An increasing number of Asian Internet firms are falling through the gap between hype and reality. Here's one
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By Bruce Gilley/HONG KONG
Issue cover-dated May 18, 2000
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IT'S EVERY INVESTOR'S New Economy nightmare: You put your savings into a small Internet company that you've heard and read will be the next big thing in cyber space. Six months later, your shares are worth a third of what you paid for them. And the company's planned listing on a major stock exchange is being delayed indefinitely.
That's the story of Ziasun Technologies, a little-known American company that's listed on the lightly regulated, over-the-counter Bulletin Board of the Nasdaq stock exchange. Since late 1998, when Ziasun acquired two Internet start-ups in Hong Kong and the Philippines, the company and its paid stock promoters have pitched it as Asia's next Internet giant. But the gap between hype and reality has steadily widened. Ziasun's business unit for Asia, Hong Kong-based Momentum Internet, has yet to come up with a successful e-business.
Its assorted ventures remain nascent at best, turning in an operating loss of $600,000 last year on revenue of $3.5 million. They include an on-line brokerage, a companies directory, a portal for business people and a Web-site hosting and design service. Few industry analysts or venture capitalists in Hong Kong have heard of Momentum or its Internet ventures.
Since investors, prompted by sceptical stock analysts, began taking a harder look at Ziasun late last year, its stock price has fallen fast, from a peak of $16 in January to today's $6, putting its market value at around $160 million. The company's falling share price--and questions by regulators seeking more details about its disclosure statements--are holding up its planned listing on the American Stock Exchange.
Ziasun is just one of the cautionary tales emerging from the New Economy in Asia. Plenty of other Internet firms are also struggling to draw up business plans, even as they absorb investors' money and hype their prospects to keep the funds flowing in. Ill-informed investors outside Asia are more easily impressed by the claims of self-promoting Asian Internet plays--and are certain to be dismayed as more Ziasun-like stories get told.
"It's easy to be critical of Ziasun and its business model, but it's no different from any other Internet company," says Terrence Annamunthodo, executive director of Hong Kong-based fund manager Long-Term Partners, which has invested in Momentum's business portal. "I'm sure their listing will be hit by the market correction. But that's just the risk you take."
The man behind Ziasun in Asia is Anthony Tobin, a 55-year-old Briton who started out as a journalist on small newspapers in Australia. In the early 1970s, he worked in the Middle East and Europe, where his posts included night editor at the Tehran Journal in Iran and editor of Dutch airline KLM's in-flight magazine. Later, Tobin worked stints at government information departments in Hong Kong and Singapore. In between, he set up a firm publishing travel guides in the Philippines. Tobin was running his own advertising agency in Hong Kong as the territory's 1997 return to China neared. Fearing the possible impact on his business, he turned to the Internet as insurance.
PLANS FOR 'TIGER TOOTH' PORTAL
"It was a way to internationalize my business to protect myself in case anything went wrong," he says. The result was a company offering Web-site hosting and design, and another providing e-mail services. They became Momentum Internet.
Tobin soon steered Momentum into a series of other Internet businesses. Swiftrade is an on-line securities-trading site. Momentum Finance is a financial-information service. Search Dragon is an on-line directory of Asian companies. Momentum Asia, an affiliate in the Philippines, handles Web design and a call-centre business. Asia4Sale helps people open on-line stores. And AsiaENet is building a portal targeted at Asian executives; called Tiger Tooth, it will launch in the middle of this year, Tobin says.
Those ventures came out just as the Internet began to take off in Asia. In early 1998, Tobin was approached by a group of investors in the United States led by stock promoter Bryant Cragun and marketing man Allen Hardman. Their company's investment in a device that refills soda bottles at supermarkets had just failed. They decided to transform the company, called BestWay U.S.A., into an Asian Internet player before listing it on a major U.S. exchange. "For them, it was part of the dotcom thing. For me, it seemed like a way to get listed simply and easily," says Tobin.
In October 1998, the investors group bought Momentum Internet and Momentum Asia for 5.1 million shares in BestWay, which was renamed Ziasun Technologies. Ziasun's sales pitch became its focus on the Internet in Asia. "Originally we were thinking more international. But then everyone got excited about Asia. So we did a reversal," says Tobin, now Ziasun's chief operating officer for Asia.
Press releases by the company and reports by stock promoters last year and early this year said Ziasun had "a dominant position in the exploding Asian Internet market," that it was "the portal of choice" in Asian countries and that it was "a recognized leader" in the region's Internet world.
But as the company failed to live up to the billing, plans for a quick listing faltered. Swiftrade's partner is a small Hong Kong broker called United Mok Ying Kie, which hasn't generated much business, Tobin says. Asia4Sale "is not yet producing substantial revenues for us," he adds. Advertising on the other sites is negligible. In the Hong Kong office, about 10 people click away in silence. The 40 staff in the Philippines are housed partly in a disused building on a former air-force base.
Tobin also promotes the acting career of his eldest son and the treasure-hunting operation of a Philippine friend among the "Internet businesses" on the Momentum Web site. The company has designed and hosts the Web sites of only two clients--mutual-fund retailer Barclays International Funds Asia and executive-search firm Bennett Associates.
Ziasun's bottom line in 1999 showed a small profit. But that was only because it booked a $5 million gain from a last-day-of-the-year sale to Taiwan investors of 83% of Asia4Sale; plus there was a $6 million operating profit from an American subsidiary that runs seminars on day-trading.
"Tony's group has suffered from not having significant local players as partners," says Annamunthodo of Long-Term Partners. "You need salesmen with connections in this region to make an Internet company boom."
Instead of well-connected salesmen, Ziasun engaged several stock-promotion agencies to issue glowing reports on it, but when quoting them didn't disclose it had paid for the service. Among the latest was Hamburg-based World of Internet, whose tip sheet Stockreporter in April put Ziasun's target price at $28.50 a share this year--implying a market capitalization of $770 million--rising to $80 longer term. World of Internet was partly paid with 5,682 Ziasun shares valued at $11 each, of which "a certain amount compensates Stockreporter for dissemination of the research report," the tip sheet said in a disclaimer.
Such efforts have made Ziasun the target of stock analysts, fund managers and investors, who have posted their attacks on financial Web sites. In April 1999, an analyst at FinancialWeb.com criticized the way Ziasun had portrayed Momentum's businesses, concluding: "What's behind this upstart? Not much, so far as we can tell, besides a slew of press releases and some pretty outrageous hype." A year later, the criticism has continued: "Ziasun is an unproven entity that talks big but comes up short on facts and figures," analysts at StockDetective.com wrote.
CRITICS ARE 'FANATICS'
Ziasun has sought but failed to get court injunctions against some of its harshest critics. Tobin says they're short-selling the stock--claims that the critics deny--hoping to earn a profit by driving the price down. "Those people are fanatics. You cannot win a debate with them."
Indeed, the critics seem to be winning: Ziasun's listing has been delayed, Tobin says, because the U.S. Securities and Exchange Commission has "made a few comments" on its disclosure statements. With the stock price languishing, it's questionable whether Ziasun will go public in the foreseeable future.
Tobin still hopes that bundling his various Internet interests together on the business portal, Tiger Tooth, will finally create synergy through a one-stop shop for Asian executives. Long-Term Partners' $1 million investment for a 10% stake in the portal will cover costs for this year, he says.
The events of the past year have left Tobin disillusioned with the stockmarket game. If the company can't list, it won't matter, he says. "I'm not out for a major stock play. I'm here to build a business."
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