Dining in the Hong Kong Club early last year, a cashed up and confident Citic Pacific chairman, Larry Yung Chi-kin, spotted former China Light & Power chairman Sir Sidney Gordon. Seemingly off the cuff, he suggested the two companies cut a deal. Within two weeks, Citic Pacific had paid $16.25 billion for a 20 per cent stake in Hong Kong's premier power utility.
Shortly before, Mr Yung had completed a management buy-out of Citic Pacific, acquiring a 15 per cent stake for $33 a share. Yesterday, the stock closed at $25.15. Mr Yung has faced painful margin calls while CLP sits awkwardly on an unused $16 billion cash pile. More than a year later, the virtue of both deals must be questioned.
Morgan Stanley is understood to have financed most of Mr Yung's purchase but after Citic Pacific's share price collapsed apparently demanded he and his owner-manager colleagues provide fresh collateral.
When CLP recently set a special interim dividend from property earnings not yet received, the hand of a cash-strapped Mr Yung was suspected. Still, analysts applauded the move, together with plans to return much of the Citic Pacific $16 billion cash infusion if power deals were not quickly secured.
Indeed, CLP's announcement might come to be seen as a watershed in the way Asian firms organise their finances. For perhaps the first time, a leading local blue chip articulated a creed of shareholder value based on an efficient balance sheet. Suggesting idle cash is better off in shareholders' pockets might not sound revolutionary, but in the Asian context it represents a call to arms.
Yet the obvious question is, if CLP did not need the money why did it do the deal? At the time, most commentators saw the transaction as overtly political. The companies, for their part, talked enthusiastically of synergies in the mainland power sector. That 14 months later no deals have been done and talk of a possible joint venture vehicle allowing CLP to buy into Citic Pacific's mainland power projects remains just that, speaks for itself.