Well, I imagine this guy would do a free analyst report on ZSUNE: webb-site.com Wicked Webb-Site A Briton's online analyses skewer some Hong Kong stocks. By Leslie P. Norton
If you've been watching the collapsing market in Asian Internet stocks, there's a chance you've also been reading David Webb. A financial analyst and the publisher of www.webb-site.com, Webb, 34, has skewered several of Hong Kong's highest-flying cyberplays, which not coincidentally are run by
the region's most powerful families. For example, those who bought shares of
Techpacific.com, the Hong Kong Internet "incubator," at its initial public
offering may wish they had read Webb first.
Webb charged that some big investors had gotten in just two weeks before
the April IPO, at a mere third of the proposed offering price, and disclosed
when their lockup periods -- the spans during which they couldn't unload
shares -- would expire. He noted that at least 85% of Techpacific's first year
of cash revenues came from related parties. And he lifted the veil of
anonymity from some of the investors, who turned out to include such New
Economy cognoscenti as Merrill Lynch telecom analyst Adam Quinton,
China.com honchos Peter Hamilton and Ian Henry, and a bunch of
well-known Asian investment bankers, media types and others.
The Techpacific piece was vintage
Webb. "Don't get us wrong," he
wrote, "In a short period of time,
Techpacific has assembled what
appears to be a competent team of
professionals. But the way in which
the share offer has been put together
shouts of opportunism and pyramid
selling. We cannot see how the
value per share of the company can
have gone up threefold in two
weeks. ... The company wants you
to put up 70% of the invested capital for 12.5% of the firm, and the
outstanding options will dilute that to 10.4%. Ask us for money, but don't
make us laugh."
Robert Owen, Techpacific's chairman, was outraged. "I was surprised that he
wrote his piece without making contact with us to check his facts or give the
company an opportunity to comment, he says.
Owen says the well-known investors bought their shares months before the
IPO, but that issuance of the stock certificates was delayed as Techpacific
established a Cayman holding company. He also maintains that these folks
contributed "on exactly the same terms as institutional investors." And sure, he
says, first-year revenues come from related parties, but "half the point of
having shareholders in early development is so they can help introduce
business."
Webb disclaims any responsibility for Techpacific's 32% drop from its
offering price, and certainly Nasdaq's nosedive created havoc for many tech
plays around the world. "I'm sure I don't move markets," he priggishly
declares in an interview. Still, he acknowledges making "some sort of
contribution" to the slump in Techpacific and similar issues, "in the sense that
there wasn't much independent research" apart from his own.
In any case, people suddenly are paying attention to David Webb. Sniffs one
executive at a prominent Hong Kong bank: "He seems to exert his influence
primarily through the media. He might have a following among some real
investors; otherwise, I'm not sure how he'd pay his rent, but I don't know of
any."
Alan Smith, vice chairman of CSFB Asia in Hong Kong, knows Webb well.
Smith advises Pacific Century CyberWorks, the recent acquisitive target of
numerous Webb critiques. Webb's site, Smith acknowledges, "has become
one of the well-followed sites of Hong Kong."
Frank Chiang, who runs Asian
portfolios for Montgomery Asset
Management in San Francisco,
started reading Webb a few weeks
back. Says Chiang: "There's a lot of
truth in it. I know the individuals and
can just picture them getting together
to take advantage of this mad rush for
Internet paper."
Webb is sometimes compared to
Matt Drudge, editor of the gossipy
U.S.-based Website that followed
every twist of the Monica Lewinsky-Bill Clinton affair. Yet Webb is no
scandal-monger. A U.K. native, he's a former investment banker who has
lived and worked in Hong Kong for nearly a decade, first as corporate
finance director of BZW Asia, Barclays' investment banking arm, and then as
an adviser to Wheelock, a publicly traded conglomerate. He has an affinity for
technology, having written video-game software as a teenager. Webb trades
his own portfolio, works on new market development for the Hong Kong
Stock Exchange and is chairman of the Hong Kong branch of Mensa (an
organization for people with high IQs).
Lately, he's cast his eye on Tom.com, which, according to its own marketing
materials, aims to be "the largest and most popular China-related multi-lingual
megaportal of China infotainment content." Individual investors lined up to buy
a piece of Tom.com when it came public in March, wanting a piece of the
region's richest and most powerful tycoon, Li Ka-Shing. Tom.com is jointly
owned by his two holding companies, Hutchison Whampoa and Cheung
Kong Holdings.
Yet Webb criticized the company's "skimpiest collection of Websites," noted
that its HK$30 billion-plus market cap dwarfed net tangible assets of
HK$1.42 billion, and that Hutchison itself had numerous consumer-related
Web projects -- with Priceline.com and DLJdirect, for example -- that it
wasn't sharing with Tom.com.
Wrote Webb: "Even if [these projects] are injected [into Tom.com] in the
future, there is no reason to think that they would get them cheap. ... By
comparison with Tom.com, the market values Wharf Holdings at a similar
HK$31.8 billion. We're no fan of Wharf, but for that price you at least get
85% of I-Cable," and other assets. "The founding shareholders must be
counting the days to when the six-month lockup expires on September 1."
Tom.com wasn't available to comment. The stock trades at HK$6.25, higher
than its offer price, to be sure, but well below its March high of HK$15.35.
The most visible target of Webb's censure is Pacific Century CyberWorks,
steered by Li Ka-Shing's son Richard. In March 1999, Webb penned a piece
entitled "Cyber Villas by the Sea." It looked at the Cyberport, the $1.6 billion
real-estate project overseen by Li fils that would lure multinationals and
startups to Hong Kong. Controversially, the government awarded the project
to Li without public bidding. Webb pointed out that residential floor space
would account for more than 75% of Cyberport-leaving an unimpressive
amount for businesses.
In succeeding months, Webb looked at Pacific Century Cyberworks' late
February bid for Hong Kong Telecom, formally known as Cable & Wireless
HKT, which was accepted by parent Cable & Wireless. PCCW, which has
the Cyberport and several Internet investments, has been a runaway success,
and Li fils has issued stock at higher and higher prices. Given the Li family's
calls on the markets, investment banks like Merrill Lynch, Jardine Fleming and
Barclays had created "a wall of silence" around their companies, Webb
asserted.
After scrutinizing the company himself, he concluded: "Perhaps the biggest
leap of faith by the board of Cable & Wireless is that the share price of
PCCW will stay up long enough to persuade all the other shareholders to
elect to receive 100% paper rather than the 70% shares, 30% cash
alternative." PCCW, added Webb, "cannot go on making larger and larger
acquisitions and share issues in order to fatten its fair value per share, because
the deals would have to be enormous in order to materially raise the value per
share."
More recently, when PCCW agreed to sell 40% of Hong Kong Telecom's
wireless operation to Australia's Telstra, in return for a $3 billion investment in
a "strategic alliance," Webb carped: "PCCW has begun to dismember C&W
HKT even before it has bought it." Then he observed that key stocks in
PCCW's portfolio -- CMGI, Hikari Tsushin International, Softnet, Tom.com
-- had slid sharply. Webb then asserted that PCCW's fair value was
HK$3.81 per share if the Hong Kong Telecom deal failed, or HK$6.05 if it
succeeded.
Since Webb first critiqued the Hong Kong Telecom deal on March 5, PCCW
stock is down 34%.
Says John Colmey, PCCW's research chief: "He does not attend our analyst
or press briefings and I really don't know where he gets his information. But
that is the beauty of the Internet." And to be fair, anyone who shunned
PCCW based on Webb's declaration that the shares were overvalued in May
'99 (when they traded at a split-adjusted HK$6) would have missed the
runup to the stock's high of HK$28.50 in February. Recently, it was at
HK$14.50 and change.
What Webb aims to do is drag Hong Kong, which drastically lags the U.S.
and U.K. in corporate disclosure, into the modern investment age. He wants
to enhance transparency, abolish anti-competitive behavior and generally get
fairer treatment for minority shareholders. "Nobody represents institutional
investors over here," he grouses. "If companies did pay attention to minority
shareholders, they could get a lower cost of capital."
And he's actually had some success. Wheelock Group last year took
department store chain Lane Crawford private, but only after shareholders led
by Webb had forced an increase in the offer.
So, how does Webb make his money? Basically, by buying and selling
small-capitalization stocks for his own portfolio: "I look at the 600 companies
that make up 10% of the market cap in Hong Kong, not 100 companies that
make up 90%. I look for good-quality management, by which I mean no
history of abusing shareholders, with a long history, meaning that if they tried
to rip off shareholders they would have done so by now."
He also searches for companies trading at low prices, relative to the
traditional benchmarks. What he ends up with is usually fairly illiquid.
Favorites include Boto International, which makes Christmas tree ornaments
and Tungtex Holdings, which has a big cash pile, and makes silk clothing.
Notwithstanding his negative commentary, he says he hasn't shorted any
stocks mentioned on his Website, although he won't rule this out.
Webb has no plans to "go commercial" because "there are too many
dot.coms throwing money around." Currently, the site is free. He has 2,000
readers and, he maintains, the number is growing by 5% a week. Readers can
send and receive e-mail on the site. There's no chat room, but could one be
far away?
One longtime Hong Kong strategist applauds Webb's efforts. "Under the
British, it was 'Don't rock the boat, because we're leaving.' Now we want to
run the place. We're fed up with duplicity. We want to move things forward."
Webb is trying to make that happen.
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