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November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

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MARCH 3, 2000 VOL. 26 NO. 8

Is This The Way To Invest Sensibly?
Hong Kongers are going nuts over an IPO with no history but a big name behind it
By YULANDA CHUNG Hong Kong and ASSIF SHAMEEN Singapore

Hong Kong is a city where serious people seem to regularly lose their minds over the prospect of serious money. But knowing that wasn't preparation for the frenzy surrounding the application process to buy shares in the initial public offering of Tom.com, a weeks-old Internet start-up from tycoon Li Ka-shing. Police estimated that more than 200,000 people turned out Feb. 23 to file applications at just 10 designated branches of HSBC, Hong Kong's biggest bank with more than 200 branches in the special administrative region. The number was limited by Tom.com's lead underwriter, BNP Peregrine. Streets around each of the branches were jammed for blocks. Actual bank customers couldn't get near their branches, and some nearby stores simply closed for the day.

In the end, retail investors applied for up to 2,000 times the number of shares available to them. Tom.com is expected to list on the Growth Enterprise Market (GEM) March 1, at which point the frenzy over filing IPO share applications may seem tame. The price of the stock initially should be about 23 cents (HK$1.78 - the high end of a range set out in the IPO prospectus). The current gray market price for shares is about six times the initial price. This is necessarily an estimate because traders say there are in fact no sellers - no one is apparently willing to part with shares before the launch.

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There are, nevertheless, doubters. At a recent presentation before big-wheel investors and fund managers in Singapore, for instance, the smoked salmon, consommé and light show won raves (see Assif Shameen at Asiaweek Online, www.asiaweek.com/intelligence) - but the presentation itself fell flat, according to some who saw it. Chief executive Carl Chang, dressed in baggy cotton pants and a wrinkled shirt, was asked some tough questions: How does the company plan to recruit talented people in a thin market for tech-skilled labor? Exactly what does the company plan to do to make money. His frequent answer: We need a successful IPO. After the show, much of the conversation among fund managers centered on the salmon - was it flown in from Alaska or Seattle? But as for actually investing in the company, one investor said simply: "I have real work to do at the office."

Back in Hong Kong, Chang spoke with Asiaweek and insisted the company was off to a good start in terms of attracting visitors to its website. Eventually, the company plans to develop multilingual portals for China-related infotainment. Tom.com says it has 70,000 registered users and 2.5 million daily page views.

Whatever the prospects might eventually be for the company's business plan, the real reason Hong Kong investors have been so hungry for the IPO of a start-up with no history, few employees and a motherlode of hype can be summed up by a single name: Li Ka-shing. The Hong Kong tycoon, together with his sons, Richard Li Tzar-kai and Victor Li Tzar-kuoi, control three key conglomerates: developer Cheung Kong, Hutchison Whampoa and Pacific Century CyberWorks.

David Webb, a financial analyst who uses his webb-site.com Internet site to act as a consumer watchdog for investors, claims the Li name has already earned Tom.com a pocketful of valuable concessions and rule waivers from the GEM listing committee. In each case, GEM rules stipulate that the exchange has the flexibility to grant waivers under exceptional circumstances. However, Webb argues that he doesn't see the exceptional circumstances that prompt special treatment for Li's new company. For example, the new portal will be allowed to list additional shares within six months of initial listing, which contravenes standard GEM rules. Chang says the company needs the flexibility to use its shares in case it wants to acquire other companies. Also, Tom.com management will be allowed to sell their shares after six months instead of having to hold on to them for two years, which is the standard waiting period stipulated by GEM. Finally, Tom.com has received permission to award 50% of its shares to employees as stock options. The company says it needs this exemption to attract top talent to the company, but Webb argues that the waiver is an unfair advantage unless other new GEM companies get the same consideration.

Webb argues that Hong Kong investors should protest loudly against these waivers, because he thinks they ultimately hurt the credibility of the bourse with the global investing community. But here is the rub: the Hong Kongers who braved cold and rain and huge crowds to place their IPO applications with HSBC know exactly what they're getting into. They wouldn't be going to such trouble if it weren't Li Ka-shing's company. Who said life was fair?


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