PCCW is Hong Kong’s dominant telephone company. It is mostly owned by Mr. Richard Li son of Hong Kong Tycoon Li Ka-shing.
Recently it tried to sell its assets. A bidding war started between to groups of foreign investors, TPG Newbridge and Macquarie Bank. The problem was Beijing. China Netcom, a Chinese state owned company, owned 20% of PCCW’s stock. Telecommunications companies control information and the Beijing government likes to control information both in China and in Hong Kong. Beijing did not want these assets in the hands of foreigners.
Enter Mr Leung who gained fame as "father of the red chips" for arranging Hong Kong listings for Chinese companies in the mid-1990s. Mr. Leung who obviously is well connected in Beijing came in with a HK$9.2bn ($1.2bn) deal to buy Richard Li’s controlling interest in PCCW rather than its assets. Mr. Li’s has agreed.
Despite his protestations that he was acting alone, Mr. Leung is most likely acting for the Chinese government with loans from Chinese state owned banks. Like in Russia, these strategic assets are now safely back in states hands.
If you doubt that relationships trump rules in China, consider this case. If you doubt the power of Beijing over the value of Hong Kong securities, consider this case. If you wonder about corporate governance of Hong Kong equities, consider this case. It is not about the shareholders or the law. What Beijing wants. Beijing gets.
William Gamble
EMERGING MARKET STRATEGIES
Internet: xgamble@cs.com
