The Name of the Game

Who wants to be a millionaire? Most people wouldn't mind. But who wants to hand over their savings to a millionaire? That was the question in Hong Kong last week, and the answer: just about everybody. Hundreds of thousands of people jostled, shoved and sometimes begged to give sizable checks to Li Ka-shing, Hong Kong's most powerful tycoon. Some 50,000 lined up in one neighborhood, and 100 policemen had to be dispatched to keep them peaceful. On Nathan Road, Hong Kong's prime tourist boulevard, traffic had to be rerouted to accommodate crowds waving bank drafts.Technically, they weren't giving Li cash but investing it in a company--even sexier, an Internet company with the catchy name of Tom.com--closely associated with him. That sounds reasonable, although financial experts noted the locals' propensity for mass hysteria over money matters. None was more distressed than Donald Tsang, the Financial Secretary, who worried about people overseas seeing television footage of Hong Kongers going bananas: Wouldn't they think money is all the society is about?

What the hordes were clamoring for was a piece of a new Internet venture, 57% of which is owned by Hutchison-Whampoa and its parent Cheung Kong Holdings, the flagship of Li's business empire. (Another significant Tom.com shareholder is Pacific Century CyberWorks, a high-flying Internet company controlled by Li's son Richard, who is currently trying to gain control of Cable & Wireless HKT, the Hong Kong telecom giant.) Li offered 16.9% of Tom.com's shares to the public to raise $113 million. And in contrast to a stock offering in the United States, where hot ipos are usually the domain of big mutual funds and other institutional investors, a full 10% of those Tom.com shares were allocated to individual investors.
When Tom.com did its sums, investors had given checks for 700 times the number of shares available. So much cash was locked up in the offer that trading in other shares slumped, prompting concerns over the stability of the financial system as a whole. The good news for those who bought shares at the offer price of 23 cents: analysts expect Tom.com shares to at least quadruple when trading begins this week, and that's a spectacular paper profit.

Despite the frenzy on the streets, Tom.com wasn't as popular as some of the red-chip companies, so called for their connections to the Chinese mainland, that were floated in Hong Kong in the mid-'90s. (The wheels on that bandwagon fell off a few years later when several of the firms defaulted on their debts.) But Tom.com is the most successful launch anywhere for a company that essentially does nothing. Cheung Kong is a property conglomerate with virtually no Internet experience. Tom.com was created in November, and the domain name was bought from a U.S. company in December. Tom.com does have a website, which broadcasts programming from a Hong Kong radio station. Other than that, it has little but the glitter of Li's backing and a business plan that would have been considered audacious to the point of lunacy just a few months ago. Its managers say they want Tom.com to become the most popular portal, or entry site, for Chinese-language Internet users, after which they intend to make it the Time Warner of Asia. But they also admit that plans for the company really begin with the public offering, which was designed to give Tom.com currency, they say, to use in making Internet-related investments and poaching Net-savvy people.

Currency it got, from the nest eggs of some half-million individuals, and the $113 million raised last week is a big chunk of Tom.com's working capital. In other words, now that the public has ponied up some cash, Tom.com will figure out how to spend it. You can say that it's nothing now, says Scott Blanchard, head of Asian Sales Trading at ABN AMRO. But give it a little time. Li is waiting until he has a market capitalization before he starts making big deals and signing on big names. Success is a self-fulfilling prophecy for Tom.com.

Individual investors weren't the only ones mesmerized by the Li connection. The Stock Exchange of Hong Kong granted Cheung Kong a rare waiver of its rule that investments in a new issue must be held for at least two years; instead, Cheung Kong is free to cash out after only six months. Perhaps stung by accusations of favoritism, the Exchange ordered an investigation into the chaos that surrounded last week's offering.

I think it's all a dead-on sign we're reaching the peak of the market, says Sadiq Currimbhoy, a strategist at Merrill Lynch's Hong Kong office, where the office boy was among the throngs trying to buy Tom.com shares. Other indications: the Hang Seng Index has climbed 70% in the past 12 months, and many of the most popular tech stocks aren't even represented on the index. In January, shares in a money-losing textile company called Cheung Wah rocketed 32-fold after Japanese Internet investor Softbank announced plans to acquire it for use as a holding company. Acme Landis, which manufactures and installs toilet bowls and sinks, has become a hot stock after a consortium of Netrepreneurs and investors bought a majority stake in the company. And last week, Hong Kong businessman Simon Murray acquired a local company called Arnhold Holdings, which used to make kitchen cabinets. He's turning it into a tech stock, and the shares finished the week up nearly 400%. Murray's claim to fame: as a former chief executive officer of Hutchison-Whampoa, he is known to enjoy Li's good graces. In today's Hong Kong, that's enough to get the checkbooks fluttering.