2000: The dotcom boom

Enthusiasm for all things tech took hold of the Asian capital markets, as it did around the world, pushing investors into decisions that were not always, well, rational. Hong Kong hosted two of the most memorable, top-of-the-market trades of the dotcom era. Li Ka-shing’s foray into the internet sector triggered frenzied scenes across town as retail investors fought – literally, at times – to get their hands on shares in

Tom.com, a start-up with the sketchiest of business plans. Second son Richard Li’s audacious bid for Cable & Wireless HKT drew a similar response in the bank loan market, despite the short track record of his firm, PCCW.

IFR Asia 147 – February 26, 2000

Tom.com grabs internet fever

Hong Kong – a place known for speculative manias on stocks, stamps and Snoopy dolls – has added internet stock fever to the list with thousands of retail investors lining up last week for the latest hot stock, Tom.com, an internet portal arm tied to Li Ka-Shing’s property companies Cheung Kong Group and Hutchison Whampoa.

The issue was offered to retail as well as in a placement and priced at the top of its range at HK$1.78 (US$0.22) per share. The total deal aimed to raise around HK$876m, including the greenshoe overallotment option, and the stock will list on Hong Kong’s Growth Enterprise Market on March 1.

While about 1.5m applications were given out, returned forms were still being counted. On February 23, crowds of about 300,000 rushed to bank branches to hand in completed share applications.

The unusually heavy demand stems from the fact that

Tom.com is 57% owned by Cheung Kong Group, 38% owned by Hutchison Whampoa, with Li Ka-Shing’s son, Richard Li Tzar-kai’s, Pacific Century CyberWorks owning the remainder.

The 42.8m-share public offering was oversubscribed by at least 1,200 times, said officials. This almost matches the support for red chip Beijing Enterprises, which was 1,276 times subscribed at the height of the 1997 boom.

The placement offering for 385.2m shares also drew heavy demand, and was well over 100 times subscribed, said observers.

One equity banker not in the syndicate expressed caution that feverish speculation could harm sentiment if the stock fell flat later. “I know I subscribed for some,” said the source. “It’s just a punt, really. I don’t believe in the business model. I think nobody who subscribed thought they were really in it for the long haul.”

Hong Kong’s Securities and Futures Commission asked the deal’s sponsor to submit a report on the case, and mentioned the “disorderly scenes at the receiving banks. […] They should have made better arrangements for distribution and acceptance of application forms,” said the SFC.

IFR Asia 148 – March 4, 2000

Banks eye deal of the Century

With its takeover bid for Cable & Wireless HKT now accepted by the majority shareholder, Pacific Century CyberWorks (PCCW) will syndicate the US$12bn bridge facility underwritten by Bank of China Intl, Barclays Capital, BNP Paribas and HSBC Investment Bank, which will take out the cash portion of its offer. BOCI and HSBC will both underwrite 30% of the loan, with Barclays and BNP sharing equally the remaining 40%. Participants must stump up US$500m apiece, limiting the lender universe for what is the largest loan ever for an Asian credit.

The coordinating arrangers will syndicate shortly, relying on the greed factor in selling down their positions to reasonable levels. The bridge is expected to carry a spread of about 150bp over Libor with front-end fees taking the all-in close to 200bp. The bridge carries a tenor of 364 days and offers an attractive US$10m return to those whose are willing to join in syndication. There is also an option for a two-year extension which is exercisable on maturity.

The refinancing will be met by a convertible bond issue and a fresh loan syndication from PCCW. Complementing these will be a cash injection of some size, according to an official at one of the arrangers. Bankers expect that some of this cash will be raised through a divestment of those of C&WHKT’s businesses that PCCW is understood not to want, including its mobile phone division.

Other cash for the takeout will come off balance sheet – Li said that PCCW and C&WHKT could each yield some US$2bn. It is also thought likely that, as the largest shareholder, PCCW will pay itself an extraordinarily large dividend before the bridge loan matures to contribute to the takeout.

BOCI is rumoured to be insisting that any commitments coming from its 20-odd sister banks – most of the commercial banks in China and Hong Kong – be used to sell down its own underwriting commitment only. The rest of the group is said to have reacted with fury to this demand but, as usual, bowed before the Chinese house’s financial and political clout.

IFR Asia 152 – April 1, 2000

Slimmer PetroChina gets done

Government officials from the People’s Republic of China and international bank syndicate members heaved a huge sigh of relief as this year’s largest Chinese equity deal – PetroChina – finally got out the door at a less-than-projected size of US$2.89bn with 17.6bn shares sold. While bankers had not released an expected size, the oil company had projected a US$5bn-$7bn issue early in the offering process, said syndicate sources.

Realism also prevailed in the pricing of the deal at HK$1.28 per H share, almost at the bottom of the marketed HK$1.24-HK$1.51 price range. The American depositary share, meanwhile, priced at US$16.44 per ADS. “It was realistic pricing and realistic sizing,” said a source at lead manager Goldman Sachs.

Perhaps the key to the entire deal proved to be the last-minute US$1bn order from BP Amoco in return for signing letters of intent that would allow BP to pursue gas and fuel marketing activities in China.

The second key proved to be the last-minute inclusion of roughly US$350m in orders from four developers with PRC ties, including Cheung Kong Holdings and Hutchison Whampoa, the development companies of Hong Kong billionaire Li Ka-shing. Other developer buyers included Sun Hung Kai Properties and Chow Tai Fook Nominee, which runs New World Development.

Some hinted that with such high stakes, the mainland Chinese government did some arm-twisting to get property developers and others involved to buy. “Come hell or heaven, they would get it done: they would not let it fail,” said one syndicate source.

Mark Mobius, managing director of Templeton Asset Management, told IFR Asia late on March 30 that he put in a bid for some shares and awaited word on his allocation. “We looked at it,” said Mobius. “It was a little expensive for us. We put in a bid for some, but at a lower price than I think they will be selling at.”

Some fund managers just generally held wary views on PRC stocks and thus stayed away. “We are just letting it pass. It’s a Chinese stock,” said Hugh Young, managing director at Aberdeen Asset Management, who nonetheless holds Hong Kong stocks with region wide exposure.

Equity sources remained mixed on what PetroChina meant for future deals, but expressed unanimity that had there been a cancellation, the consequences would have been disastrous.

But, as a source at Goldman summarised, “the point is, the deal got done. We had a lot of opposition but we didn’t have to pull the deal.”