China Everbright goes full steam on expansion after painful restructuring
After a painful restructuring and asset disposals, the red chip looks to double its assets under management in three years from HK$33b now
It was awful-tasting medicine, but the patient needed it.
Four years after the 1997 Asian financial crisis, a mountain of outstanding debt and a cash-flow crunch propelled China Everbright to undergo a painful restructuring and a spate of asset disposals.
"When I joined the firm in February 2001, there were four Hong Kong-listed companies on the brink of collapse, leading to a problem of survival," chief executive Chen Shuang told the South China Morning Post.
He was referring to the aftermath of four acquisitions between 1996 and 1998, including the purchase of Hong Kong-based developer HKC, which was subsequently sold in June 2001 for HK$189 million after suffering huge losses a year after the deal due to a sharp economic slowdown.
After incurring its first-ever loss of about HK$1.2 billion in 1999, HKC recorded a second annual loss of HK$1.1 billion for the following year, with an outstanding debt of more than HK$1.9 billion.
"It was a truly memorable experience when I first joined China Everbright in 2001, when the firm had to deal with the aftermath of the Asian financial crisis of 1997-98," said Chen.
"In response to the cash-flow crunch and in the absence of a helping hand from the mainland, we had to act decisively on what to sell in order to keep our businesses afloat."
Chen also serves as one of the non-official members of Hong Kong's Financial Services Development Council, which comprises 22 members and is the brainchild of Chief Executive Leung Chun-ying.
After years of restructuring, China Everbright, the listed flagship of conglomerate China Everbright Holdings, which in turn is under the direct control of the State Council, successfully transformed into a business with private equity, venture capital and real estate interests.
With more than HK$33 billion in assets, the rapidly expanding group is on track to become a competitive fund management firm after the "painful" measures taken more than a decade ago.
"We are looking to double our assets under management three years from now," said Chen, who has laid out an ambitious plan to fund the expansion by selling shares of Shanghai-listed China Everbright Bank to the parent.
The Hong Kong unit also holds about 33.3 per cent of Shanghai-listed broker Everbright Securities, which was put under the public spotlight last year for trading glitches.
As a result of a so-called "fat finger" error, the China Securities Regulatory Commission fined the state-owned broker a record 523.3 million yuan (HK$657.5 million) and banned it from proprietary trading in stocks and derivatives.
Chen first joined the parent firm as deputy head of the legal department from Bank of Communications. The 47-year-old manager was quickly promoted to deputy general manager of the red-chip firm in 2004, overseeing its investment banking business and serving as a key adviser to the chief executive.
"At Bank of Communications, my involvement in disposing of 30 billion yuan in bad assets and offloading non-banking assets helped me understand the entire reform of the mainland's commercial banking sector," Chen said, referring to the disposals of subsidiaries Haitong Securities and China Pacific Insurance to the Shanghai government.
Both subsidiaries were later taken public as part of the country's effort to increase transparency and lift corporate governance to international levels.
"[As part of the government-led banking reform], consolidating power from the lightly controlled local branches to the main branch has been an important achievement," said Chen.
"With assistance from the central government, it took almost three years to complete the unification process, setting up standardised policies on dividend payouts."
China Everbright has experienced a raft of management reshuffles since 1999, when former chairman Zhu Xiaohua was replaced by Liu Mingkang, who stayed in the post for about 11 months before becoming the chairman and president of Bank of China until 2003.
China Everbright Holdings tapped Bank of Communications president Wang Mingquan to replace Liu as chairman in the reshuffle at the firm in 2000. Wang retired from the top post after staying for seven years.