Liquidators are preparing to carve up debt-ridden Guangdong (HK) Tours after its parent admits defeat The no-frills blue and white buses of Guangdong (HK) Tours sit in a depot waiting to be sold off for cash. Its six retail outlets are awaiting new tenants. Nearly 100 staff of the defunct travel agent are looking for new jobs while awaiting redundancy payouts. At least 300 holidaymakers are cursing the company, their travel plans in limbo. Liquidators will soon move in to carve up Guangdong (HK) Tours after its parent, Guangdong Holdings, threw in the towel on June 12. The travel agent had amassed debts of HK$337 million and seemed incapable of digging itself out of a financial black hole. As far as Guangdong Holdings director Li Wenyue was concerned, there was no future for the firm, and with 'regret', the parent decided to pull the plug. 'If you were the investor, I believe you would not continue to hold this company,' Mr Li said after the travel group was put into provisional liquidation. The firm's abrupt closure has left 92 employees without their statutory benefits. Labour Department mediators are on the case. At least 300 customers are out of pocket, with complaints to the Consumer Council involving HK$386,000 worth of claims. Many had paid deposits for local tours, air tickets, ferry tickets and hotel bookings in advance and soon found that these are not covered by the Travel Agents Ordinance. Only those on outbound tours can receive ex gratia payments of up to 90 per cent of the fares paid. Provisional liquidators at Kennic LH Lui & Co are putting together a list of the tour operator's assets. According to partner Ruby Leung, for the large part this amounts to the buses and three properties in Hong Kong. The initial reaction to the tour group's collapse was one of shock, but not surprise. Guangdong (HK) Tours had been selling assets, closing outlets, cutting staff and slashing pay over the past two years even before the Sars outbreak. The 20-year history of Guangdong (HK) Tours seems to be a tale of a state-owned apparatus being handed a travel boom on a plate and reaping the benefits - until market conditions turned against it. Its financial health was also intertwined with the woes of a parent company undergoing a very public US$5.59 billion debt restructuring process following the 1997-98 Asian financial crisis. The then parent, Guangdong Investment, pared down its debts to the satisfaction of creditors, but Guangdong (HK) Tours remained somewhat of an embarrassment, sinking deeper and deeper into the red until it was sold to Guangdong Holdings in April. The value attached to Guangdong (HK) Tours at the time was just HK$31.53 million. Quite how it plunged so deep into debt is unclear. The company has cited bad property investments and mismanagement. It is evident, however, that Guangdong (HK) Tours was unable to shrug off these liabilities through its own business of operating tours to and from Southern China. Until last year, Guangdong (HK) Tours enjoyed the luxury of being one of four state-approved travel agents to herd people across the border. These tourists grew from a trickle in the early 1980s to nearly one million by 1996. By last year, nearly seven million mainland residents had visited Hong Kong, a third from Guangdong. By 1993, the tour company had opened three hotels in Hong Kong, including the 204-room South China Hotel in North Point, which cost HK$300 million. In a sign of its apparent good fortune, Guangdong (HK) Tours was housed in its own flagship building in Causeway Bay. It also boasted a Guangdong Tours Centre in the same district. In all, there were 12 retail outlets and about 120 staff. The tour operator was shepherding 300 to 400 people across the border every day. The first signs of financial distress became public in 1999 when Guangdong (HK) Tours was sued by foreign creditors for outstanding loans of HK$45 million. Foreign banks had become impatient with the pace of restructuring at the group's parent, Guangdong Investment, which in turn was 40 per cent owned by Guangdong Enterprises, the investment arm of the Guangdong provincial government. Guangdong Investment had been, since 1999, under pressure to improve its financial situation, cutting debts from HK$4.5 billion in 2000 to $2.4 billion last year. The tour group started to put up properties for sale. In 2001, it sold the Guangdong Tours building in Causeway Bay for HK$720 million. That year, the travel firm posted a $7.2 million loss. The following year, this rose to $36 million. And it was last year that Guangdong (HK) Tours lost its foothold in the market, which was opened to a further 68 travel agents. 'You had prices coming down, more creativity, all helping to encourage more visitors,' Hong Kong Tourism Board spokesman Simon Clennell said. 'If you have a big share of the market, you have a lot to lose.' The price of a Hong Kong-Guangdong weekend tour fell to as low as 400 yuan (HK$374), compared with about 1,200 yuan before liberalisation. Many firms compensated for this drop in fares by liaising with retailers who were willing to pay a commission to operators bringing tourists to their stores. That year, however, Guangdong (HK) Tours closed half of its branch offices and sacked about 60 staff. Ex-workers and industry observers speak of a company unable or unwilling to adapt to the intense competition. Management was not driven by profits. According to one former employee: 'It was a place reserved for senior management's relatives or friends. They didn't have much experience in the travel business; some didn't even know the procedure for applying for visas.' It seemed to become just another state-run enterprise failing to innovate under the perception that the parent behemoth would guarantee its security. The company's traditional business of arranging tours rewarded it with profit margins of HK$2,000 per head prior to last year. Once the market was saturated, this fell to just $20, according to former staff. Legislator for the tourism industry Howard Young has watched the market evolve post-liberalisation: the more innovative players are profiting. 'Herding around of people in groups is going to be less in general,' he said. Tourists are more discerning these days: they want a mix of tours and concert tickets, hotel packages, nature trips, arts shows, historical tours, and so on. The bus may have been the best way to cross the border a few years ago, but railway links and ferries have improved. Moreover, Mr Young is hoping for a further opening of the Guangdong market, allowing residents to come to Hong Kong without being part of a tour. 'It doesn't mean it will be the end of travel agents,' he said. 'They will just have to change the way they do their business.' He describes the demise of Guangdong (HK) Tours as a 'real pity', citing intense competition as just one factor in its downfall. Internal problems - such as the loss of many senior staff - and its position as part of a bigger group probably played a greater role, he said. He does not expect other agents to suffer the same fate. 'In Hong Kong, every year, more than 100 travel agents do terminate their business. Then another 100 or so come into business,' he said. Nor does Mr Young factor Sars as a key trigger for more failures: 'Sars has hit everybody. I don't think it's directly related ... maybe we can say it's survival of the fittest.' Sars may, however, have been the final straw for Guangdong (HK) Tours' parent. It was just another sapper on a company haemorrhaging cash and knee-deep in debt.