HONG KONG - This city, with its low-tax regime and free-wheeling business
environment, has long been a haven for tycoons and their fortunes. Alongside
the dominating view that that this is a city in which to make money, the
business ethics and personal behavior of these masters of the Hong Kong
universe at times fall short of being exemplars of probity and decorum.
In the league of brazen behavior among the city's business elite, Richard Li
Tzar-kai appears to have taken a commanding lead. Li, 42, is the playboy son of
Hong Kong's tycoon No 1, Li Ka-shing, chairman of Hutchison Whampoa Ltd and
Cheung Kong Holdings and the richest person of Chinese descent in the world -
even after the 80-year-old patriarch's net worth, now estimated at US$16.2
billion, has reportedly been cut in half by the economic downturn.
The younger Li's romantic life attracts the constant attention of the local
paparazzi, but his questionable business deals have created an even bigger
splash, to the extent that Li the younger at present is generating more
headlines than Li the iconic elder. This classic father-son rivalry is worthy
not just of the attention of the paparazzi but also of multiple sessions on a
psychiatrist's couch.
Another dimension in the family rivalry is added by rebellious Richard's older
brother Victor, who dutifully helps his father run his business empire.
The younger son appears determined to top the patriarch with overcompensating
acts of ego that have merely made a mess of his family's legacy while turning
him into tycoon villain No 1 among Hong Kong's less affluent citizens, who had
become accustomed to putting their cash into almost anything that bore the
imprimatur of the Li family. The city's reputation for corporate governance,
often questioned but usually seen as higher than many business centers in the
region, has also suffered from his dealings.
This father-son battle goes way back but, as of last week, it hit a new low.
That was when Richard once again felt compelled to demonstrate his
entrepreneurial shrewdness by engineering the sale to himself of PCCW Ltd
(Pacific Century Cyberworks), the publicly listed Hong Kong telecommunications
giant of which he is chairman and executive director. Surely, his father took
notice: the timing was superb, the strategy brilliant and the profit sweet.
Unfortunately, allegations of vote-buying on the PCCW board mean a cloud of
illegality hangs over the sale. And while the sale was satisfying for Richard
Li, for many other long-term PCCW shareholders, the price of HK$4.50 a share
represented a 96% decline in the company's share value from nine years ago.
Adding salt to the wounds of distressed investors who had bet on the company at
the height of its value and hung on to their holdings, Li had arranged the deal
so that PCCW's two major shareholders - China Unicom Goup and Li's own
Singapore-listed Pacific Century Regional Development - walked away with
dividends amounting to HK$1.7 billion (US$219.2 million) more than they paid
for the company in the privatization sale. At the same time, PCCW managers are
slashing budgets and laying off workers.
Since Li and his backers have purchased the company during an economic downturn
at the bargain-basement price of HK$16 million, it is almost certain that they
will be able sell it a few years from now at handsome profit - if, that is, the
deal is allowed to go through by the Hong Kong Securities and Futures
Commission (SFC), which is investigating allegations of vote-buying made by
corporate activist David Webb, a retired investment manager and former
non-executive director of Hong Kong's stock exchange.
Webb charges that hundreds of sales agents at Fortis Insurance Company, which
has past dealings with Li, were given 1,000 PCCW shares in exchange for voting
in favor of the sale. In the end, 82% of the shareholders voted to endorse the
privatization.
Fortis was previously known as Pacific Century Insurance Holdings (PCI). In
2007, Li's PCRD sold its controlling stake in PCI to Fortis for HK$3.53
billion.
If all this smacks of shady, wheeler-dealer intrigue, that is presumably the
point. Li - unless, of course, he gets fingered for engineering voter fraud -
has shrewdly taken advantage of depressed market conditions to buy back his
business at a profit. Not bad for a guy who dropped out of Stanford University
after three years, although in PCCW publicity material he was at one time
credited with a degree in computer engineering from the university.
Somewhere (if only in the son's dreams) the father is nodding in admiration.
The elder Li is popularly known in Hong Kong as Superman, and his youngest son
earned the sobriquet "Superboy" when in 2000 PCCW shares peaked after his bold
purchase of Cable & Wireless HKT for HK$296 billion, a leading
telecommunications supplier for the city. The sale made PCCW, which Li had
started as a small dot.com company in 1994, one of Hong Kong's biggest
corporate players. Soon thereafter, however, as the dot.com bubble burst, the
company's shares plummeted, and Li has ever since been looking for an exit.
He thought he had found an escape in 2006 in another dubious chapter in both
his and Hong Kong's corporate history. Two potential buyers - the American
Texas Pacific Group and Australia's Macquarie Bank Ltd - submitted competing
offers for his majority share, but politics intervened when PCCW's
second-biggest shareholder, China Network Communications Group, objected to
foreign ownership of what it regarded as a national strategic asset.
After that, an independent investor offered to come to the rescue, but when the
white knight turned out to be backed by Li's father, the younger Li balked at
this patriarchal interference. And so the family soap opera continues.
But this is not the only tycoon drama in town. The Kwok family, which controls
Hong Kong's largest property developer, Sun Hung Kai Properties, made headlines
last year when Thomas and Raymond Kwok acted, with the aid of their 79-year-old
mother, to oust their elder brother Walter as the company's chairman and chief
executive officer. Amid reports that Walter had tried to bring his mistress
onto the SHKP board, his two brothers described him as a manic-depressive unfit
for his position, and the board voted him out.
Casino mogul Stanley Ho Hung-sung, now 87, has been causing a stir for decades
as, on his way to becoming a billionaire, he collected four wives who have
borne him 17 children.
Asia's richest woman, Nina Wang, prior to her death in 2007, was engaged in a
drawn-out court battle with her father-in-law for control of another big Hong
Kong property company, Chinachem Group. Now Wang is posthumously involved in
another courtroom battle as Chinachem contests a will that leaves her fortune
to her feng shui master and reputed lover, Tony Chan Chun-chuen.
In the worst of recent scandals, Hong Kong banks mis-sold billions of Hong Kong
dollars worth of so-called minibonds backed by the now defunct Lehman Brothers
to thousands of inexperienced investors.
It turned out that the minibonds, often advertised as a safe investment, were
not bonds but complexly structured, high-risk credit derivatives. When Lehman
collapsed, so too did the investment that these bank customers, many of whom
were retirees, had assumed was a safe bet.
Hong Kong regulators were nowhere to be seen during this fiasco.
In another case, Citic Pacific Ltd, the Hong Kong branch of China's biggest
investment company, waited six weeks last year to report to investors a loss of
HK$15.6 billion due to unauthorized bets on currency exchanges.
Most recently, in the face of stiff opposition from the tycoon class, the
city's stock exchange, the Hong Kong Exchanges and Clearing, agreed to delay
the introduction of a new rule preventing directors from trading in company
shares from the time that the year-end reporting period ends until earnings
results are publicly announced.
So those spoiled tycoons may continue their insider trading unchecked by the
law.
And where will the SFC investigations of Li's latest deal lead? Probably
nowhere. Superboy will likely fly again.
Kent Ewing is a Hong Kong-based teacher and writer. He can be reached at
kewing@hkis.edu.hk.
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