HK tycoons: on the front line with mainland firms

Hong Kong’s family-owned conglomerates are locked in fierce competition with mainland Chinese companies that are expanding overseas, and they are losing at least one battle.

Hong Kong’s business moguls are using different tactics in the face of fierce competition with mainland Chinese companies that are rapidly expanding overseas.

The tycoons’ fate offers a glimpse into a possible future for other companies that will face the mainlanders as Beijing pursues a China-centred trading network with countries identified in its Belt and Road Initiative and as business disrupters, such as Alibaba and Tencent, tackle new markets.

For many in Hong Kong who lionise self-made men, the rise of new cultural icons such as Alibaba’s Jack Ma spells the demise of local billionaires. For some families that will be true; others are evolving to take advantage of change. 

Some tycoons have simply taken the opportunity to sell out to cash-rich mainlanders and are reinvesting the proceeds overseas.

Others are using this windfall to pay special dividends to grateful shareholders who are struggling to make a return in a low-interest-rate world – and of course to themselves. Notably Joseph Lau’s Chinese Estates sold a Grade A office tower to mainland developer Evergrande in 2015 for HK$12.5 billion ($1.6 billion) and paid a special dividend afterwards. 

Opportunistically, some families have used the influx of new money to solve long-standing conundrums. The Kuok family agreed to sell the SCMP Group to Alibaba in December, 2015 after the media group's fourth consecutive annual drop in profits. Also the SCMP Group’s shares have been suspended from trading since 2013 because the firm did not have a large enough free float.

Likewise CC Tung agreed to dispose of the family’s container-shipping company, Orient Overseas International Ltd, to China’s largest state-owned shipping conglomerate, Cosco Shipping Holdings, for HK$49.23 billion ($6.3 billion). This may well prove a convenient exit from the shipping sector where economies of scale are becoming essential.

These sales of course leave the tycoons with plenty of money, but less recurring income and waning influence in the autonomous territory.

The disposals have also nurtured the sense among Hongkongers that the tycoons are milking local assets to finance a future elsewhere. This trend was epitomised in their eyes by Li Ka-shing’s attempted sale of supermarket chain ParknShop in 2013.

In contrast some, like the Cheng family at the helm of property developer New World Development, are localising. Adrian Cheng told FinanceAsia the future of the family firm’s developments in Hong Kong is to instil a sense of community.

He calls himself a cultural entrepreneur and says new technology is complementary to his work as it helps build an online buzz around a physical meeting place. 

The tycoons still have political pull. Carrie Lam met second-generation tycoons when she was campaigning to be Hong Kong’s chief executive earlier this year, according to local media reports.

One of the hottest prospective IPOs in the Territory is Razer, a gaming hardware maker backed by Li Ka-shing. The canny investor still seems to have his investing mojo at 89 years old.

Victor Li and Li Ka-Shing

Battle of perception
Even so, the tycoons are losing the PR battle for the hearts and minds of local Hongkongers who especially view the second and third generation scions as trying to hang on to privilege and block progress.

Given most of them built their fortunes wheeling and dealing in property they are blamed for soaring rents. The wealth gap between rich and poor widened to its biggest on record last year, stoking resentment of the elite among the masses. 

Meanwhile Ma, a former school teacher who has amassed a fortune of nearly $30 billion, is offering to make Hong Kong a “more fashionable” cashless society by helping it develop data centres and e-payments systems, according to Hong Kong’s leading English-language newspaper, The South China Morning Post – which he now owns.

A symbol of changing society is residence on The Peak. Once a favoured location of the British taipans due to the mountain’s slightly cooler air, mainland Chinese are now gazumping residences as the ultimate statement that they have arrived.

Indeed, when a 9,890 square foot, three-storey house on Barker Road, The Peak, sold for HK$1.5 billion in 2015, there was no surprise when the name of the new owner of Hong Kong’s most expensive residence was revealed: Jack Ma.

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