Wu do you think you are kidding?
View from Hong Kong: He appears as a man of global vision - but may not have the means to execute it
Monday 27 November 1995
Mr Wu has a habit of doing things in stages and the deadlines for the stages have a habit of being passed without fulfilment. None of this, however, has dissuaded bevies of fund managers, bankers and fawning journalists from beating a path to his door. He has presented himself as a visionary, the man who really understands Asia's infrastructure needs and has found a way for the private sector to work with governments in meeting their requirements, without having to dip directly in the national coffers.
His flagship company, Hopewell Holdings, was popping up all over Asia, announcing deals to build power stations, roads and all manner of other projects. At first Hopewell's focus was on China, then it moved south to parts of South East Asia and then north to India and Pakistan.
The newspapers were filled with pictures of a smiling Mr Wu in the company of political leaders whose countries were about to receive the benefit of a Hopewell scheme. Gradually the pictures of smiling faces gave way to reports of bitter disagreement between Hopewell and practically all its Chinese joint venture partners. In the Philippines, power projects were mired in litigation, and in Thailand the government became so fed up with delays to Mr Wu's road, rail and mass transit project that the deputy prime minister, Thaksin Shinawatra, publicly described Hopewell as "Hopeless Holdings".
Name-calling is one thing, a collapse of Hopewell's share price is another, more serious, matter. More than 40 per cent has been wiped off the price of Hopewell's shares since their high point this year.
It has taken time, and the release of some disturbing figures, for investors to finally realise that Mr Wu talks a great story but rarely delivers. One of his better stories concerns the turnkey project to build a so called "super-highway" from the Hong Kong border to the Chinese regional capital of Canton. Mr Wu first told his shareholders that HK$9.4bn (pounds 780m) had been budgeted for the highway's' construction. He has now revealed that another HK$5.4bn (pounds 448m) is required. Cost inflation does not, however, end there; the second phase of the project remains uncompleted and it is almost certain that additional funding will be required.
Some Hopewell watchers believe that the total cost will end up being around double the sum budgeted. Not only is the highway way off budget, it is also way off schedule. Completion was due by the end of 1993, and during that year Mr Wu promised to jump into Hong Kong's Victoria Harbour if the project was not completed. The harbour's waters remain unruffled by his bulky presence. Moreover, it seems that usage of the part of the road that has opened is far below projections.
Over in Bangkok, the Thai government is fuming about the late completion of Hopewell's elevated road, rail and mass transit project. Costs, according to Mr Wu, may rise to HK$30bn - as opposed to the HK$24.5bn originally estimated. Recently the Thai government reluctantly decided to allow Hopewell to continue with the project, despite the fact that only a tiny part of the work has been completed. Assurances have been given that the road part of the project would be finished by June 1998 and the rail system by December 1999.
As project delays mounted so did Hopewell's debt. The accounts for the year to 30 June show debts of HK$7.1bn, producing gearing of 60 per cent. Debts are forecast to rise beyond HK$9bn in the coming year, yet he claims that the debt- to-asset ratio is 32 per cent.
As the impact of these figures was being digested there were dark mutterings of pressure from the Hongkong Bank, Hopewell's main lender. Hopewell maintained a complete silence on this and other matters. A number of requests for interviews with Mr Wu were turned down.
However last week Mr Wu suddenly agreed to an impromptu session with the media, at which he said that because investors seemed to be so concerned about debt, he would create a debt-free company.
He talked of selling off stakes in the super-highway for some HK$40bn - and of selling a part of the Bangkok project. The basis of his valuation of these projects is tenuous to the point of incredulity. The super-highway is not expected to make money for another 10 years and it is anyone's guess when the Bangkok project will be completed. However, selling assets is something of a Wu speciality. Every year since 1990, Hopewell has been selling off property assets to make its bottom line look better. In so doing it has been depriving itself of an important revenue- earning stream. Two years ago this started to take its toll. The last set of results, for the year to June 1995, show that a mere 21 per cent of operating profit was derived from its core businesses, the rest came from asset sales and treasury operation gains.
A rights issue to clear some of the debt is pretty much out of the question. More borrowings would push gearing to astronomical levels and so Mr Wu plans to sell more of the family silver. Or does he? A day after the media briefing, the board of Hopewell issued a statement which read: "The directors wish to emphasise that the consideration of the disposal is at an early stage and as such the disposal may or may not proceed."
The directors have now managed to sow confusion where there was previously doubt. The chickens may be coming home to roost for one of Hong Kong's few companies which showed real signs of global vision and innovation. The problem is that the vision was not combined with the means to execute it.
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