The real test for Richard Li is now
By Quak Hiang Whai
RICHARD Li, chairman of Pacific Century CyberWorks, seems to have the ability to shake the market with record-breaking feats, whether it is good news or bad. For him, fortunes seem to have swung from one extreme to another in the last decade.
Some years back, the "Stanford educated" youngster was catapulted into the corporate world when he sold his loss-making Star TV to Rupert Murdoch for a cool US$950 million (S$1.7 billion) after borrowing HK$500 million (S$115 million) from his billionaire father as seed money for the venture in 1990.
But the rising star soon suffered his first setback when he sold a huge stake in a land deal to his father's Hutchison Whampoa after he was said to have overpaid for the site. Analysts immediately read that as a parental bailout.
Before long, he made headlines again when he convinced the government to award the Cyber-Port project to Pacific Century Group without calling for a public tender. His stars rose further when he mounted the biggest takeover in Asian corporate history, which saw him snatch Cable & Wireless HKT from SingTel. The deal was also financed by the biggest loan ever in Asia -- US$12 billion.
Meanwhile, CyberWorks' share price skyrocketed several times. Suddenly, Mr Li was all over the world, making the cover pages of major publications such as Asiaweek, Time and Newsweek.
Unfortunately, the honeymoon ended before the market could even say NOW -- his grandiose Network of the World, that is supposed to combine TV with the Internet by beaming original content via satellite. But with NOW going nowhere, CyberWorks chalked up another nasty record: its shares lost nearly 90 per cent of their value in one year, making it the worst performing Hang Seng counter during the period.
Things were already not going well last week when it emerged that he actually never graduated from Stanford despite all the corporate literature that said so all these years.
But on Wednesday, CyberWorks hit rock bottom -- well, almost rock bottom, as the stock plunged further yesterday and sank below HK$3 at its intra-day low. A year after all the euphoria, CyberWorks announced a loss of HK$6.9 billion, surpassing even the most bearish estimate by analysts of HK$5.4 billion. The biggest loss in Hongkong's corporate history is thought to be Akai's HK$13.4 billion chalked up in 1999.
Expecting a barrage of nasty questions from the media over his education credentials, Mr Li decided not to show up at the press conference to announce the group's results on Wednesday. On the books, CyberWorks is now worthless -- its entire shareholders' funds have been wiped out by its write-off of goodwill worth US$22 billion stemming from the purchase of HKT.
Adding to its roll of "honours", CyberWorks has become the first Hang Seng stock to have negative asset value. On the profit-and-loss statement for the year, the group made provisions of HK$4.887 billion for unrealised losses from investments -- mostly in Internet companies -- and financial charges of HK$2.356 billion.
Some analysts think the losses could have been higher as investments in unlisted companies were said to have been carried at book value. But stripped of the exceptional items and financial charges, a few analysts actually felt the underlying operating performance was in line with their expectations.
Still, it is worrying that the cash cow HKT is writing the cheques for all the New Economy businesses while its own IDD revenues are plunging by as much as 34 per cent because of rising competition.
To be fair, it may not be entirely Mr Li's doing that CyberWorks ended up with negative equity of HK$14.1 billion in one year. No one could have fully foreseen the telecom and Internet meltdown, and questions are still being raised about the original motivation for the HKT takeover.
But more importantly, how is he going to further convince investors to help finance his expensive grand plans such as the Internet communications backbone and NOW? For retail investors, Wednesday's closing price of HK$3.45 gave CyberWorks a market value of HK$76 billion, which means shareholders are effectively paying a premium of HK$90 billion on its book value. The company will also not be paying dividends for a few years.
Also hanging over investors and bankers is a chunk of CyberWorks shares owned by C&W plc, which had made the poor choice of taking scrip instead of cash a year ago.
Rightly or wrongly, with short-selling rampant and bankers getting worried about telecoms and Internet-related loans, any right-minded banker or stockbroker would have to reassess his exposure to the company. Indeed, HSBC Securities yesterday downgraded the stock to hold from buy.
Any equity or debt calls now would be ill advised. It is no coincidence that Mr Li said capital expenditure would be cut by 10 per cent this year. With some HK$40 billion of net debts to service, the company would have a lot of excesses to cut -- some of which would have to be major Internet-related initiatives. Worst, the management is now required by exchange rules to be more vigilant with future deals, having to call for shareholders' approval for deals worth over HK$2 billion. This would further aggravate the situation since the fast-moving corporate world is not going to wait around for a shareholders' meeting to sanction their deals.
CyberWorks will now have to work hard to secure the swift cooperation of investors, bankers and even its own shareholders before it can land any good deal. If business is all about credibility, the management at CyberWorks has surely reached a crossroads where it has to take some hard decisions to overhaul its business model. For Mr Li, this is truly the time for him to finally strut his stuff -- and show that he is indeed the one to turn things around.
Copyright © 2000 Singapore Press Holdings. All rights reserved.
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