The Fall of Asia’s Internet King
Last year at this time, the poster child for Asia’s dot-com craze was Hong Kong entrepreneur Richard Li--the upbeat chairman of a flashy new company called Pacific Century CyberWorks Ltd. who cast himself as a Stanford grad with a can’t-miss vision for the future.
But falls have been fast for “new-economy” companies in Asia, and the situation has deteriorated so much that Li didn’t even show up Wednesday when PCCW announced its annual results at a packed news conference. Instead, he left other executives to deal with the barrage of questions.
Considering the circumstances, some found it hard to blame him.
Contributing to his fall from grace, Li’s company posted a whopping $886-million net loss for 2000--a figure even worse than what many pessimists had expected--on sales of $935 million. In 1999, before it purchased Hong Kong’s biggest telephone company, PCCW turned in a profit of $44.5 million on hefty investment gains and sales of $19.5 million.
PCCW’s slide continued Wednesday as its American depositary receipts fell 19 cents to close at $4.18 on the New York Stock Exchange. Earlier, the firm’s ADR hit a 52-week low of $4.10, about an 80% drop from the high of $20 a year ago.
For Li, 34, the reversal of fortune was more than the burst of the dot-com bubble, because he’d become Asia’s most-celebrated Internet executive outside Japan.
Many of the key investments he made over the last year have gone bad (much of the loss announced Wednesday stemmed from a $627-million write-down of its Internet-linked portfolio assets). In October, Li had to settle for a minority stake in a lucrative mobile phone venture with Australia’s Telstra Corp., and one of his most widely hyped ideas--a Pan-Asian interactive television net dubbed Network of the World--has failed to meet expectations.
Li is the son of one of Asia’s richest business tycoons, Li Ka-shing. He began his business career in the early 1990s, using a $125-million stake from his father to launch an Asian satellite television network, Star TV. Although questionable at the time, the investment proved wildly successful. After selling the venture to media mogul Rupert Murdoch a few years later for almost $1 billion, he used the proceeds to set up PCCW.
That capital, plus the cachet of the Li family name, enabled him to put together a $13-billion loan to buy Hong Kong’s largest telephone company, Hong Kong Telecom, in a deal completed in August. That purchase gave PCCW a firm and reliable anchor in the “old economy,” one that vastly increased its size and today produces about 90% of its revenue.
During his deal-making spree, Li agreed to develop a cyber-port business park on government-owned land. And PCCW became partners with DaimlerChryler to build a satellite and ground transmission network for Li’s broadband Internet venture. He also struck deals with China’s leading computer firm, Legend Computers.
The slide in Li’s reputation also has a personal side.
Even the Stanford degree that served as part of Li’s aura during the start-up phase has disappeared. After the International Herald Tribune said in an article last week that he had never graduated, Li was forced to admit that his company media machine’s frequent reference to him as “a Stanford graduate with a degree in computer engineering” was a lie.
“I studied for three years at Stanford, but I did not get a Stanford degree,” he later told a local radio reporter.
It was a highly embarrassing admission, and the company’s often-prickly relations with the media weren’t helped by the fact that its initial response had been to threaten to sue the newspaper “to protect our reputation.”
PCCW Deputy Chairman Francis Yuen repeatedly declined to elaborate on Li’s degree at Wednesday’s news conference, stating only, “We’ve nothing new to add.”
There are signs that aftershocks from the revelation could be felt for some time.
Trevor Jones, head of research in Hong Kong for Indosuez W.I. Carr Securities, noted tat the incident followed a prolonged period during which PCCW’s senior management gradually appeared to be losing investor confidence.
“The way they’ve managed public expectations, their public relations, has been disappointing,” he said. “This will make investors think again about information they get from the company.”
The affair has even spawned a Web site that claims to be gathering material for a class-action lawsuit against Li and his company.
“If you think you were cheated, misled and suffered investment loss, please send your complaints to us,” the site urged.
Although he decided not to face the media, Li did take questions from financial analysts at a meeting transmitted by closed-circuit television to reporters as they awaited Wednesday’s news conference. Appearing somber and at times tentative, Li and the management team surrounding him predicted 2001 would be better.
“We feel confident we can achieve a high single-digit revenue growth,” he told analysts.
Losing More Than Face
Pacific Century CyberWorks Chairman Richard Li appeared by closed-circuit television to discuss the Hong Kong-based firm loss of $886 million in 2000. In 1999, PCCW turned a profit of $44.5 million thanks to major investment gains. The 34-year-old Li had become Asia’s most-celebrated Internet executive outside Japan.
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Falling Stock Price
Pacific Century Cyberworks’ American depositary receipts have lost about 80% since August, when they traded at $20. The ADRs represent 10 ordinary shares of PCCW traded on the Hong Kong stock market.
Wednesday: $4.18, down 19 cents
Monthly closes and latest
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A Look at Pacific Century CyberWorks
* Parent: Pacific Century Group, established in October 1993 with proceeds after the sale of Star TV, the first Pan-Asian satellite television network, to News Corp.
Business operations
* Telecommunications: Communications and Internet service provider with 2.2 million residential and 1.5 million commercial customers in Hong Kong
* Internet enterprises: Business-to-business and business-to-consumer services, data centers, Web hosting, investments in related companies
* Global communications: Broadband and wireless connectivity in the Asia-Pacific region
Sources: Bloomber News, Times research, company documents
