PCCW saga a blow for HK's credibility
Richard Li Tzar-kai's grand plan to retreat from the telecoms industry has hit the rocks, leaving behind a litany of questions about political interference, family discord and corporate governance. They cast a long shadow over Hong Kong's image as a credible centre of international finance.
Australian investment bank Macquarie and US buyout firm TPG Newbridge had proposed separate bids to acquire PCCW's key assets. China Netcom, PCCW's second-largest shareholder, decided against selling and enlisted Xinhua, the state-run news agency, to issue a press release to publicise its desire that PCCW should remain in local hands. The unusual arrangement speaks volumes about the nature of the opposition to the deal. Beijing was firmly against allowing what it considers to be a strategic asset of Hong Kong to fall into foreign hands.
Francis Leung Pak-to, an investment banker with strong ties to Li Ka-shing, Hong Kong's richest tycoon and father of Richard, then emerged as a white knight to block the foreign bids. In July, Mr Leung put together a deal to acquire Richard Li's 23 per cent stake in PCCW, held through his Singapore-listed vehicle Pacific Century Regional Development.
Quizzed at the time, Mr Leung denied that the elder Mr Li was among his backers. It turned out that this was a technical denial. The tycoon was not an investor at that stage, but he was the source of a HK$500 million loan that Mr Leung drew on to pay a deposit to PCRD. The Li Ka-shing Foundation, the tycoon's vehicle for charity work, has since taken a 10 per cent stake in Mr Leung's consortium.
Mr Leung appears to have been acting as the front man for the elder Mr Li. It looks as if the tycoon, with extensive connections in Beijing, engineered the deal to resolve the political problem his son had caused. Father and son, it seems, did not communicate over the matter. When Richard knew of his father's involvement in Mr Leung's bid, he was so angry he reportedly said last week that he would rather PCRD's minority shareholders vote it down. Now that the younger Mr Li's reported wishes have come true, following the vote in Singapore yesterday, Hong Kong's reputation for having a level playing field for business has suffered a severe beating.
It would be naive to think that politics never plays a role in business here. British interests once dominated key sectors in Hong Kong, relinquishing their firm grip only in the last years of colonial rule. Indeed, politics was believed to be behind the sale by Cable & Wireless HKT - renamed PCCW by Richard Li - in 2000, three years after Hong Kong's return to China.
Beijing was widely believed to have an influence over the choice of Richard Li as the buyer, in preference to a strong rival bid from Singapore Telecom. No wonder Beijing was taken aback when he decided to sell his stake to foreigners.
But the way in which the planned sale of PCCW's assets was handled in recent months, both in Beijing and Hong Kong, has dealt a heavy blow to our city's reputation. It has done so in two key areas. The first is the blatant interference by Beijing in a proposed business deal which was really not important enough to justify such attention. This was done in an underhand way and it has gravely damaged Hong Kong's image as a city that offers fair treatment to all businesses, wherever they may come from.
Since the handover, there have been few occasions when Beijing has so obviously interfered with Hong Kong affairs. We have had a pretty good nine years. But that record has now been seriously dented. The blocked PCCW deal is a signal moment that has been watched with consternation both here and around the world.
The second concern is the failure of Hong Kong's regulators to do anything about it. This has shown them to be ineffective when faced with a series of events that raises serious questions.
The vote in Singapore might bring the whole sorry affair to the end. Now, it is hoped, we can move on. But the damage has already been done.
