Shares in Companies Run By Lis Take Center Stage
interactive.wsj.com
March 1, 2000
By JASON BOOTH
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Shares of Richard Li's Pacific Century CyberWorks
Ltd. took a beating the day after the Internet company won Asia's
biggest-ever corporate takeover prize.
PCCW's stock fell 7.9% Wednesday to 20.40 Hong Kong dollars
(US$2.62), amid investor concern that Mr. Li will have difficulty absorbing
Cable & Wireless HKT Ltd., the Hong Kong telecom giant that PCCW
plans to buy from Britain's Cable & Wireless PLC for US$38.10 billion in
stock and cash.
Yet the same Hong Kong market gave
an ecstatic welcome to tom.com, the
Internet portal controlled by Mr. Li's
father, Li Ka-Shing, who is Hong
Kong's wealthiest tycoon. In its first day
of trading, tom.com stock rose more
than fourfold, closing at HK$7.75. The
company's wildly popular initial public
offering was priced at HK$1.78 a share.
Meanwhile, HKT's stock slumped 12% to HK$22.75 as investors drove
the stock down to reflect PCCW's HK$22.99-a-share offer for HKT
announced Tuesday. PCCW's and HKT's declines pushed the broader
market lower, with the Hang Seng Index falling 1.9%.
Center of Attention
Although headed in opposite directions, the Li-family-controlled stocks
were the center of attention on the Stock Exchange of Hong Kong. "These
two counters dominated trade," said Andrew To, sales director and head
of research at Tai Fook Securities. The two stocks accounted for more
than 25% of the total value of trades in the market Wednesday.
Such market-driving impact highlights the Li family's growing status as
Hong Kong's premier business dynasty. Li Ka-Shing -- who enjoys close
relations with the Chinese government in Beijing -- already controls Hong
Kong's two biggest old-economy conglomerates, Hutchison Whampoa
Ltd. and Cheung Kong (Holdings). Now, with the debut of tom.com and
PCCW's whirlwind takeover of Hong Kong's largest telecommunications
firm, the Li family has become the leading force in Hong Kong's new
economy, too.
Tom.com's soaring debut came as little
surprise. With its IPO 669-times subscribed
and less than 17% of the company's equity
offered to investors, demand was expected to
be frantic. "The gray-market price for this
stock had been HK$6 to HK$8," said
Richard Offer, head of sales at Dresdner
Kleinwort Benson Securities. "They should be very happy with the
performance."
Yet after its initial surge, tom.com drifted lower through much of the day
and saw heavy profit-taking toward the end of trade. That hints that
excitement over the IPO may already be waning, said Michael Liang, vice
president of Asian equities at Daiwa Securities. He pointed out that
investors paid an average price of HK$8.60 a share for tom.com, 10%
above the closing price. "Most people who bought today [Wednesday]
have already lost money," he said.
Heavy Hangover
PCCW, meanwhile, suffered a heavy hangover the day after it defeated
rival suitor Singapore Telecommunications Ltd. in a takeover battle for
HKT. In late trade, PCCW stock was down as much as 10%, before
recovering modestly.
Analysts said investors are starting to assess the problems that Richard Li,
chairman and founder of PCCW, will face in assimilating HKT into his
fledgling Internet company. In the near term, some investors worry that
PCCW will issue new stock to raise more cash to help finance the
acquisition. That move would further dilute the value of investors' holdings
in PCCW.
If all HKT shareholders choose PCCW's cash-and-stock offer for the
company, rather than an alternative stock-only offer, Mr. Li will have to
come up with US$11.30 billion to close the deal. Although PCCW has
lined up loan commitments of US$13 billion from a consortium of banks,
many market analysts believe that PCCW will eventually have to issue
more shares. In the longer term, investors are wondering how PCCW will
make interest payments on such a large loan.
"How are they going to get the cash to pay for it?" asked Gilbert Chu,
head of research at Sun Hung Kai Research. "Probably from investors."
Then there is the question of how Richard Li can turn HKT from a
conservatively run telecom utility into a fast-moving Internet-service
provider. "HKT is seen as kind of a dinosaur," said Mr. Offer of Dresdner.
"The big question is can Richard Li come in and make it more dynamic."
Expected to Stabilize
Over the next few days, brokers and analysts expect PCCW's and HKT's
share prices to stabilize near their current levels. Because the combined
companies will produce one of the largest concerns in Hong Kong and a
likely constituent of the Hang Seng Index, many fund managers will have to
increase their holdings in the stocks. With that in mind, they are expected
to start increasing their weighting in PCCW and HKT in advance.
Tom.com's future, on the other hand, will be harder to predict. Once the
initial excitement over the IPO wears off, the attention of retail investors
and market liquidity will probably be diverted to other large-scale
technology IPOs in the pipeline. Web portal HongKong.com, for example,
will raise more than HK$1 billion in an IPO scheduled for March 9. That
will probably lead to more profit-taking in tom.com.
In the longer term, the company will have to clarify its business strategy
and start buying content for its Web portal in order to sustain investors'
interest, analysts say. "The excitement over tom.com will only last for a day
or two," predicted Mr. Liang of Daiwa. "After that it will depend on what
Li Ka-Shing can do with it."
By JASON BOOTH
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Shares of Richard Li's Pacific Century CyberWorks
Ltd. took a beating the day after the Internet company won Asia's
biggest-ever corporate takeover prize.
PCCW's stock fell 7.9% Wednesday to 20.40 Hong Kong dollars
(US$2.62), amid investor concern that Mr. Li will have difficulty absorbing
Cable & Wireless HKT Ltd., the Hong Kong telecom giant that PCCW
plans to buy from Britain's Cable & Wireless PLC for US$38.10 billion in
stock and cash.
Yet the same Hong Kong market gave
an ecstatic welcome to tom.com, the
Internet portal controlled by Mr. Li's
father, Li Ka-Shing, who is Hong
Kong's wealthiest tycoon. In its first day
of trading, tom.com stock rose more
than fourfold, closing at HK$7.75. The
company's wildly popular initial public
offering was priced at HK$1.78 a share.
Meanwhile, HKT's stock slumped 12% to HK$22.75 as investors drove
the stock down to reflect PCCW's HK$22.99-a-share offer for HKT
announced Tuesday. PCCW's and HKT's declines pushed the broader
market lower, with the Hang Seng Index falling 1.9%.
Center of Attention
Although headed in opposite directions, the Li-family-controlled stocks
were the center of attention on the Stock Exchange of Hong Kong. "These
two counters dominated trade," said Andrew To, sales director and head
of research at Tai Fook Securities. The two stocks accounted for more
than 25% of the total value of trades in the market Wednesday.
Such market-driving impact highlights the Li family's growing status as
Hong Kong's premier business dynasty. Li Ka-Shing -- who enjoys close
relations with the Chinese government in Beijing -- already controls Hong
Kong's two biggest old-economy conglomerates, Hutchison Whampoa
Ltd. and Cheung Kong (Holdings). Now, with the debut of tom.com and
PCCW's whirlwind takeover of Hong Kong's largest telecommunications
firm, the Li family has become the leading force in Hong Kong's new
economy, too.
Tom.com's soaring debut came as little
surprise. With its IPO 669-times subscribed
and less than 17% of the company's equity
offered to investors, demand was expected to
be frantic. "The gray-market price for this
stock had been HK$6 to HK$8," said
Richard Offer, head of sales at Dresdner
Kleinwort Benson Securities. "They should be very happy with the
performance."
Yet after its initial surge, tom.com drifted lower through much of the day
and saw heavy profit-taking toward the end of trade. That hints that
excitement over the IPO may already be waning, said Michael Liang, vice
president of Asian equities at Daiwa Securities. He pointed out that
investors paid an average price of HK$8.60 a share for tom.com, 10%
above the closing price. "Most people who bought today [Wednesday]
have already lost money," he said.
Heavy Hangover
PCCW, meanwhile, suffered a heavy hangover the day after it defeated
rival suitor Singapore Telecommunications Ltd. in a takeover battle for
HKT. In late trade, PCCW stock was down as much as 10%, before
recovering modestly.
Analysts said investors are starting to assess the problems that Richard Li,
chairman and founder of PCCW, will face in assimilating HKT into his
fledgling Internet company. In the near term, some investors worry that
PCCW will issue new stock to raise more cash to help finance the
acquisition. That move would further dilute the value of investors' holdings
in PCCW.
If all HKT shareholders choose PCCW's cash-and-stock offer for the
company, rather than an alternative stock-only offer, Mr. Li will have to
come up with US$11.30 billion to close the deal. Although PCCW has
lined up loan commitments of US$13 billion from a consortium of banks,
many market analysts believe that PCCW will eventually have to issue
more shares. In the longer term, investors are wondering how PCCW will
make interest payments on such a large loan.
"How are they going to get the cash to pay for it?" asked Gilbert Chu,
head of research at Sun Hung Kai Research. "Probably from investors."
Then there is the question of how Richard Li can turn HKT from a
conservatively run telecom utility into a fast-moving Internet-service
provider. "HKT is seen as kind of a dinosaur," said Mr. Offer of Dresdner.
"The big question is can Richard Li come in and make it more dynamic."
Expected to Stabilize
Over the next few days, brokers and analysts expect PCCW's and HKT's
share prices to stabilize near their current levels. Because the combined
companies will produce one of the largest concerns in Hong Kong and a
likely constituent of the Hang Seng Index, many fund managers will have to
increase their holdings in the stocks. With that in mind, they are expected
to start increasing their weighting in PCCW and HKT in advance.
Tom.com's future, on the other hand, will be harder to predict. Once the
initial excitement over the IPO wears off, the attention of retail investors
and market liquidity will probably be diverted to other large-scale
technology IPOs in the pipeline. Web portal HongKong.com, for example,
will raise more than HK$1 billion in an IPO scheduled for March 9. That
will probably lead to more profit-taking in tom.com.
In the longer term, the company will have to clarify its business strategy
and start buying content for its Web portal in order to sustain investors'
interest, analysts say. "The excitement over tom.com will only last for a day
or two," predicted Mr. Liang of Daiwa. "After that it will depend on what
Li Ka-Shing can do with it."
Write to Jason Booth at jason.booth@awsj.com |
