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NOVEMBER 12, 1999 VOL. 25 NO. 45
Staking Out the Internet
Hong Kong property companies turn to high-tech
By MAUREEN TKACIK
Cyberspace makes strange bedfellows, but none stranger than the pairing last week between Microsoft Corp. and Sun Hung Kai Properties Ltd. The global software giant teamed up with one of Hong Kong's premier real estate firms in a "strategic partnership" that, simply put, allows the landlord to sell Microsoft software and use Microsoft technology to develop services such as website hosting for its business tenants.
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Sun Hung Kai, which also has entered the online financial information business, is just the latest in a series of local property conglomerates to discover that in post-crisis Asia, the Internet is a lot sexier than office buildings - and that morphing into a property/dot-com business can have a salutory effect on depressed share prices. Local magnate Richard Li Tzar-kai started the stampede last spring by turning a small holding company into Hong Kong-listed Pacific Century Cyberworks, a budding Net powerhouse with a market capitalization of more than $6.5 billion. Wharf Holdings, another big conglomerate, followed with an effort to revitalize its struggling cable-TV arm by pumping broadband Internet access over its network. Analysts expect venerable Hutchison-Whampoa, fresh from a $33 billion windfall from the sale of mobile phone operator Orange, to roll out an online strategy soon. "It's just crystallizing now," says Michael Leary, a conglomerates analyst at Lehman Brothers, of the property companies' Net thrust. "[Tech] won't be contributing to the bottom line for a while, but it's there. Everyone is doing it."
Indeed they are. In the past three months, some 20 Hong Kong companies have styled themselves as born-again technology plays with whizzy new names. Great Eagle Holdings, a distributor of footwear and low-end electronics, is now Cybersonic Technology. E-New Media was a money-losing country club operator known as Essential Enterprises until it bought an Internet transaction service provider in September; its stock is up about 60% in the last seven weeks.
The tech transmogrification leaves some puzzled. Most U.S. Internet companies are losing money, and local managers have no expertise in the rapidly evolving field. "I mean, Cybersonic Technology used to make shoes," says Eugene Law, director of Celestial Asia Securities, a Hong Kong stock broker. "What are they thinking?" The craze mirrors the 1997 investor frenzy over China-related stocks, says Frederick Tsang of DBS Securities: "It's the same mentality. Stock prices are driven sky-high before any real business is done and investors all bet [they can] exit before the bubble bursts."
There may be more to the moves than the fast-buck motive. Hong Kong chief executive Tung Chee-hwa has made information technology a cornerstone of economic development policy. Observers point out that Hong Kong business has remade itself before, such as in the shift from garment manufacturing to services that began some 20 years ago. "Every time I've doubted Hong Kong's ability to transform itself I've been wrong," says Scott Blanchard, head of trading at ABN Amro. Few analysts see Crisis-wracked property firms - which accounted for as much as 55% of the capitalization of the Hang Seng Index during the boom years - recapturing their glory days. Joining the information revolution to some appears a smart diversification move. "It's certainly a bandwagon," says Rajeev Gupta, regional Internet analyst for Goldman Sachs. "But companies also realize the irreversible, ubiquitous effect of the Internet. They have to react or be consumed." Maybe it's true that on the Internet, nobody knows you're a dog - or a property company. It's a dog-eat-dog business nonetheless.
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