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FEBRUARY 7, 2000 VOL. 155 NO. 5

Now You Are Ready for The Listing
Hong Kong debut endures rough ride on the market

Danny Cheng didn't graduate from an élite overseas university or get I.T. training--and a Rolodex full of contacts--in Silicon Valley. Instead, Hong Kong-born Cheng, 33, fits the mold of an old-fashioned Asian entrepreneur, having worked his way out of distinctly humble beginnings. "My family was poor," says Cheng. "At the beginning of each month, we had to worry about how to get to the end."

But as CEO of Timeless Software, Cheng is now on top of the I.T. hill in Hong Kong. In November, Timeless was IPO'd, to use current slang, when it became one of the two initial listings on Hong Kong's Growth Enterprise Market, the territory's answer to America's technology-saturated NASDAQ market. (The name was chosen for its appealing acronym gem.) And if that wasn't dream-fulfillment enough, Cheng soon signed a controversial deal with billionaire Li Ka-shing. Quite a ride for a man forced by poverty to start working at age 13. But he began at the right place--as a computer operator for a small software company. He quickly moved up to become a programmer and then a systems analyst. "The easiest job to get was in computers because no one knew anything about them," says Cheng. Ultimately he earned an applied computing degree, obtained via a correspondence course from a British university.

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As Asia's Internet start-ups race toward lucrative listings, investors have dollar signs in their eyes
First, Create the Hot Start-up: Helloasia.com's founders think they can make their red-hot site 'sticky' and profitable
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Next, Call in The Venture Capitalist: AsiaTech takes high-stakes gambles on Internet firms
Cozy Up with The Incubator: A Hong Kong financier and his British partner hope to nurture the next big things
Now You Are Ready for The Listing: Hong Kong debut endures rough ride on the market
Or, You Can Just Sell Out: Eschewing an IPO, an Indian entrepreneur gives up his portal for a quick pot of cash

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In 1996 Cheng set out on his own, co-founding Timeless, a software-solutions firm that cured software and Internet-related headaches for the local government and utility companies. He established the company with $10 million from an investor, plus contributions from the firm's 15 co-founders, many of whom Cheng had known from nearly two decades in the technology industry. By 1997, Timeless had acquired two local systems-integration companies, and by 1998 it had opened its first China branch in Guangzhou and set up a joint venture in Zhuhai.

It took two and a half months to prepare the financial and legal requirements for the listing. Cheng and his team had envisioned a grander debut: they wanted to be on NASDAQ. But a plea from gem's chairman persuaded them to list locally. "Sophisticated technology companies like ours are better understood in the U.S.," says Cheng. "But gem needed a local hero and we were it."

Timeless had earlier secured $13 million in capital from Taipei-based "angel" investor Crimson Asia Capital. The IPO raised an additional $58 million. After an ebullient first day of trading, Timeless' shares closed at 69.4 cents, 80% above the initial offering price. The global technology share boom had officially arrived in Hong Kong.

The weeks since the listing have been stormy. In a swift year-end deal, Cheung Kong Holdings, Li's flagship, paid $5 million for a 2% stake in Timeless; in turn, Timeless agreed to invest $23 million in new offices in The Center, a top-drawer Cheung Kong development. In the old economy, a deal with one of Asia's richest men would have marked one's arrival among the local business élite. But to many punters, Timeless suddenly looked less like a go-go technology firm than an old-fashioned real estate play. "Is it a software systems integrator or a property investor?" asks Internet analyst David Webb, publisher of Webb-site.com. Webb says the office-space purchase represents 40% of the IPO proceeds and violates Timeless' prospectus, which pledges to allocate funds raised to working capital. Cheng, for his part, defends the deal. "This is good news," he says. "Cheung Kong wanted a technology company to boost the value of the group in terms of Internet and e-commerce. We get office space that's 50% bigger, with air-conditioning that runs 24 hours and showers built in." Still, the market needs convincing. Timeless' shares are still 33% off their Nov. 25 peak of 99 cents.

Cheng is projecting a $2.6 million profit for the fiscal year ending March 31, after cumulative losses of $7.7 million in its first three years. Eventually he plans to achieve the NASDAQ listing he has long sought. To accomplish that, however, Cheng will have to show business successes to U.S. investors--not just a prestigious office address and well-showered programmers.

Reported by Wendy Kan/Hong Kong

COVER STORY
First, Create the Hot Start-up
Then Pray for The Angel
Next, Call in The Venture Capitalist
Cozy Up with The Incubator
Now You Are Ready for The Listing
Or, You Can Just Sell Out

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