Headaches for CyberWorks Tycoon
By MARK LANDLER
ONG KONG, March 28 — First came the disappearing degree. Now come the disappearing profits.
Last week, Richard Li, the brash tycoon who founded Pacific Century CyberWorks, acknowledged that he had not graduated from Stanford University, as the company had said in news releases and legal filings.
Today, Pacific Century reported a gargantuan loss in its first full-year earnings since acquiring Hong Kong's telephone company, Cable and Wireless HKT, last August. After taking nearly $1 billion in charges for merger-related costs and devalued Internet investments, it lost $886 million.
"For 2001, our financial objective is very simply debt reduction," said Mr. Li, in a funereal presentation to analysts that spoke volumes about how the world has changed for the 34-year-old entrepreneur.
Once the king of the new economy in Asia, Mr. Li is collapsing under the weight of his $38 billion acquisition of HKT. The phone company generates 97 percent of the sales of Pacific Century, but it has been hemorrhaging customers since Hong Kong opened its market to new rivals.
And Mr. Li is getting a crash course in accounting: Pacific Century said it had taken a charge of $22 billion on its balance sheet to write down the good will — the gap between the book value and purchase price — of HKT.
That leaves Mr. Li, one of Hong Kong's richest men, presiding over a company with negative shareholders' equity of $925 million. Shares of Pacific Century have fallen 85 percent since their peak a year ago and now trade at 44 American cents. Given that the results were worse than analysts had expected, they could fall further.
"This is now basically an old-economy utility, comparable to British Telecommunications or an American Baby Bell," said David Webb, the editor of Webb-site.com, an Internet service that tracks Hong Kong companies. "Any growth on the new- economy side is going to be slowed by old-economy issues."
Richard Ferguson, a telecommunications analyst with Nomura Securities in Hong Kong, said "the only way PCCW can achieve its objectives is via an equity spiral or through some of the braver banks."
Mr. Li and his lieutenants labored to sketch a futuristic vision for Pacific Century, talking about business e-solutions and Internet data centers. But analysts were more interested in its decimated portfolio of Internet investments, while journalists questioned its credibility.
Last week, The International Herald Tribune reported that although Mr. Li had attended Stanford, he had not graduated or received a degree in computer engineering, as his official biography had said. The error was published in dozens of publications, including The New York Times, which reported that he had graduated in 1987 based on an interview with a company spokesman.
Pacific Century confirmed that its news releases and other materials were inaccurate, but noted that it had not made the claim in legal filings.
Then Mr. Li backed off that assertion, too, after journalists found references to the Stanford degree in documents filed by two technology companies of which he is a director: Rediff.com Ltd., an Indian company listed on the Nasdaq exchange, and Mediaring.com Ltd., a Singapore- listed venture.
The reaction has been mixed here. Some investors profess not to care, saying Mr. Li's most important credential is being the son of Li Ka- shing, a well-known Hong Kong tycoon. But other analysts said the incident would sow more doubts about a company that has already disappointed shareholders. Mr. Webb said the erroneous information was part of a pattern at Pacific Century, noting that executives had given misleading information about the terms of its bank loans.
"The company has a history of allowing quotes from its public-relations people to run ahead of reality," he said.
Executives at Pacific Century declined to discuss the dispute over Mr. Li's credentials today, and Mr. Li skipped a news conference after a televised meeting with analysts. But the deputy chairman, Francis Yuen, insisted it had not dented the company's credibility with its partners.
"They're very impressed with our behavior," Mr. Yuen said. "People who deal with us are going to judge us by our behavior."
Just making sense of Pacific Century is hard enough. Its earnings report is a stew of one-time charges, provisions and write-downs. But it is clear that Mr. Li's dream of a broadband entertainment and information service has been all but shelved. Pacific Century will sharply reduce its investment and present a new plan for the service, known as Network of the World, in three months.
"What we've learned is that advertiser-only-dependent Internet services have an uncertain future," said Jeffrey Bowden, a former Nynex executive who oversees the company's strategy, "and you can't build a business on that."
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