Jardines perfects knack of looking a greenhorn

VIEW FROM HONG KONG

What is it about the mighty house of Jardines that makes more or less everything it touches overseas turn to dust, or, to be even more cruel, makes the dust turn to dirt back in its Hong Kong home base ?

It is far too soon to start writing Jardines' obituaries. The conglomerate, whose name is synonymous with the creation of Hong Kong as a thriving commercial centre, retains many well-performing businesses; but every time it enters new markets it ends up looking like a green-horn groping its way around foreign lands.

Worse still, it has thoroughly alienated the new masters from Peking who will be taking Hong Kong back under their wing next year. Local companies have become wary of any association with Jardines and this has limited its ability to make further progress in Hong Kong where its fortunes were built.

In Britain, Jardines was reluctantly pushed to centre stage as a result of the Trafalgar House saga that ended last month when the Scandinavian ship builder Kvaerner terminated the group's unhappy stewardship by buying Trafalgar at a fire-sale price. The saga started in typical Jardines style with what looked like a clever move back in October 1992 when a mystery buyer stormed into the market and snapped up 14.9 per cent of Trafalgar's shares. The buyer was soon identified as Hongkong Land, part of the Jardines group. It took no time at all for the new shareholders to fall out with the existing management.

By April of the following year Jardines had control of the ailing company, spending over pounds 300m to obtain it. After last month's sale it will be able to write back less than half this amount in the current year's Hongkong Land accounts.

Omens of the Trafalgar debacle were easy enough to find. For example, just before the 1987 stock market crash the Keswick family, which controls Jardines, entered into an agreement with the New York-based finance house Bear Stearns to acquire a 20 per cent stake for $391m. The crash came, the Keswicks panicked and reneged on the deal. Almost four years later, following a flurry of litigation, Jardines handed over some $60m to the American company and was able to walk away litigation-free but poorer. Had Jardine Strategic stuck with its original 1987 deal it would, by now, be putting money in the bank.

Jardines was committed to moving a greater percentage of its assets out of Hong Kong before the 1997 Chinese takeover. It simply could not afford to cease the quest for overseas acquisitions. It expanded its Mercedes Benz distributorship in the US and Malaysia and grew its car retailing business elsewhere, including Britain with the acquisition of Lancaster plc, but these were relatively small investments and yielded modest returns. A more promising avenue for overseas expansion seemed to emanate from its Dairy Farm subsidiary, which was operating successfully as a supermarket chain, food wholesaler and chemist in Hong Kong. Here again, however, the opposite of the Midas touch was soon apparent.

Dairy Farm has just reported a truly dreadful profits record for 1995 because of a string of overseas acquisitions that were badly timed and strategically mistaken as they focused on the lower and most competitive end of the market.

Big losses were chalked up in Australia where it controls the cheap and cheerful Franklins supermarket chain. In Britain a controlling interest in Kwik Save, acquired in 1987, and subsequent control of Victor Value in 1989, has brought nothing but the pain of vicious competition. In Spain red ink continues to be liberally spilled over the books of the equally cheap and cheerful Simago chain.

The only good Dairy Farm news came from Hong Kong and neighbouring countries, but here's the rub. Jardines' trading activities tend to flourish in Asia - its finance house, Jardine Fleming, is a prime example - but there is no getting away from the political problems it faces at the core of its profits centre.

China has never forgiven Jardines for leading the exodus out of Hong Kong by moving its domicile to Bermuda back in 1984, as soon as the agreement was initialled for the transfer of sovereignty. Jardines' example has been followed by the majority of listed companies, but, as ever, the one who leads gets the blame. In 1992 the Chinese government signalled that relations had deteriorated further (after the company was blamed for supporting Governor Chris Patten's democratic reform plans), a statement by the official Chinese news agency condemned Jardines as the black sheep of the business community. "It craved for nothing but chaos," the agency said.

Last year Jardines tried to restore relations with what amounted to a public apology to China by Jardine Matheson's managing director Alasdair Morrison. China responded with a less than warm statement that Jardines would have to demonstrate its sincerity. The depth of Chinese feeling is reflected by the fact Beijing has vetoed further development of Hong Kong's new container terminal by refusing to accept a concession given to a Jardines-led consortium.

Little wonder therefore that local companies are shunning Jardines like a bad smell, fearful of any association that will undermine their business interests. Yet Jardines remains one of the colony's biggest companies, even though its main stake is in property and it has demonstrated an uncanny ability to sell off bits of its property portfolio just before the market scales new heights.

Nor has it done itself any favours by so thoroughly falling out with the local stock market regulators as to ensure its delisting from the local bourse. The Jardine companies have their principal listing in London and were hoping to regain local business by obtaining a listing in Singapore but the volume of share turnover has slumped badly since last year's move.

Last week Jardine announced it was taking a 20 per cent stake in a subsidiary of the Tata Group, one of India's biggest companies. Perhaps the older parts of the former empire are beginning to look more attractive than the last remnants of the colonial system.