One has to ask whether cronyism is alive and well in Hong Kong. No one would be blamed for thinking so given the Pacific Century CyberWorks (PCCW) purchase of Cable & Wireless' (C&W) subsidiary Hong Kong Telecom. As such, it would appear that few of the lessons that might have been drawn from the Asian financial crisis have been heeded.
It is worth considering the many implications of this interesting deal with its perplexing outcome.
It seems that C&W executives felt that they had to justify their actions. They have insisted that they were guided by seeking a "local solution." (Were this to be their real concern, they might have worried that the family of Li Ka-Shing (
Judged from the context of WTO guidelines, the deal violates the spirit of open competition for the purchase or sale of assets. In all events, the fact that C&W scrambled to make explanations reflects awareness that impartial observers would find the choice of PCCW to be extraordinary.
Jilted suitor, Singapore Telecom (SingTel), should not be surprised to be reminded that mixing politics and business can result in nasty surprises. After all, politics is at the heart of every aspect of life in the Lion City. (Perhaps there is something in all this that the clan of Lee Kuan Yew and their minions in Singapore's PAP can learn.)
Yet there is another twist in this transaction that is in keeping with the inanities of the logic associated with the "new economy." In this largest takeover ever to take place in Asia, a vibrant company with substantial income flows and a large stock of assets that include high-capacity telephone lines has been traded for shares of stock with values that are more virtual rather than real. Rejection of a pot of gold from SingTel for a bundle of dreams from PCCW raises question over whether Beijing helped shape the ultimate development of what should have been purely a business decision.
Other questions revolve around the strategy of C&W. it was well known that it was seeking an exit strategy from Asia in order to focus more on more developed markets in Europe. Now it has opted for engaging in a highly competitive setting with less cash in its pockets.
Reaction from the stock markets is instructive. PCCW made 2 offers. One was for just over US$38 billion in shares only while the other offered about US$36 billion in cash and shares. With so little cash on offer in the transaction, shares of C&W initially shed about 7 percent in value.
It remains to be seen what is the true value in this deal. Shares of PCCW have risen sharply in the past nine months. It may be difficult for these values to remain at such high levels. Of equal importance is whether this transaction increases the perception that Beijing will be part of future business deals. So it should be surprising that the Hong Kong Special Administrative Region government denies its own involvement while insisting that it does not do the bidding of its Mainland master. At the same time, Beijing will claim that it did not pressure any parties.
All this should be taken with a grain of salt. Without popular, direct elections in a multiparty setting, Beijing is the only source of legitimacy for the SAR government. Paraphrasing Shakespeare, "Methinks the lady protests to much."
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