Paliburg shines in soft share shuffle

SOME people just cannot leave well alone.

Late on Wednesday, Paliburg group of companies, led by architect and entrepreneur Lo Yuk-sui, announced yet another change to its corporate structure.

Less than 18 months after listing Paliburg Development, in an offer of 900 million shares at $1 each, Mr Lo wants to turn all the pieces off the table again by merging the property developer into the parent, Paliburg International, through what is effectively a privatisation of Paliburg International.

One broker described the deal as a reverse takeover privatisation of Paliburg Development, where holders of stock will be almost diluted out of sight.

Mr Lo is a man who is desperately bidding to be taken seriously as an entrepreneur, corporate engineer and all-round businessman.

To his credit, Mr Lo has taken his empire of listed groups a long way since the early 1980s, when he and arch-corporate engineer and sometime Lee Ming Tee business partner Bill Wyllie took Paliburg International and Regal Hotels from under the nose of his father, Mr Lo Ying-shek, the founder of Great Eagle.

Since 1986, when Mr Lo finally broke with Mr Wyllie, he has taken his core business empire from a combined shareholder's equity of around $6 billion to $34.85 billion at the end of 1993.

The market capitalisation of his whole group is around $19 billion.

So why doesn't the Paliburg group of firms, with Century City at its head and Regal Hotels in its wake, have the kind of strong institutional investor support that groups such as First Pacific appear to now be building up? Put simply, it is because of deals like the one announced late on Wednesday. Corporate restructuring and meddling with the group appears to be an obsessive occupation at Paliburg. Since 1986, the group has seen at least two previous restructuring programmes, each of which was reported as a means of streamlining the group.

This makes the life of those who need to make sense of the group's track record, to compare like with like, extremely difficult.

The reasons given for the corporate merger, just 15 months after listing Paliburg Development were taken as rather lame by analysts yesterday.

The company said the downturn in the property market, tough times in China and improved liquidity at the proposed combined group warranted the re-merger.

Some analysts appeared to think the expected decline in profit in 1995 had a lot to do with the change. At Paliburg International, net profit was expected to fall 26 per cent to $1 billion, with earnings per share down 19 per cent at 58 cents, according to The Estimate Directory .

Should the two companies end up in the same listing by the end of 1995 then the expected profit of the combined entity will be $1.8 billion.

Another observation made was that Paliburg Development was listed on a prospective price earnings ratio, at the height of Hong Kong's property and asset inflation boom, on 5.65 times earnings (pro-forma fully diluted).

Mr Lo will effectively be bringing the assets at Paliburg Development back within the fold of his corporate empire at a low in the property market and a prospective price earnings ratio of 2.5 times, given a 1995 30 cents earnings per share forecast.

What investors like and look for in a corporate is longevity. There is no doubt Mr Lo's empire is going to be around for a long time to come, and in this respect it fulfills one of the investment criteria of the institutional investor.

However, the concept behind longevity also extends to corporate structure, and in this respect Mr Lo's constant changing of structure and holdings in the group falls short of what some institutional investors look for.

Change such as the one envisaged by the Paliburg group is a huge absorber of time, money and resources, on what after all might be seen by some investors as a tinkering around with the assets.

It keeps lawyers and merchant bankers happy advising everyone while making fees, but it does little to actually create wealth or to help profitability endure.

If you look at some of the great hongs in Hong Kong, their essential corporate structures have not changed since the mid-1980s. Strategy and business goals have changed but overall they have maintained the same shape.