`Red Capitalists' On The Takeover TrailPete Engardio
More than most Chinese companies, China Everbright Holdings Ltd. knows that operating in the free market is not a one-way ticket to riches. In the early 1980s, the financial group was a highflying "red capitalist" arm of China's State Council. But then Everbright fell on hard times because of staggering losses and the political fallout of Tiananmen Square. To restore order, Beijing installed as chairwoman Qiu Qing, a tough former central bank official with close ties to economic czar Zhu Rongji.
For a career bureaucrat, the 65-year-old Qiu has proven a surprisingly astute corporate doctor. She has ditched money-losing assets, refocused Everbright's investment strategy, and hired some of China's brightest young financial talent. Assets now exceed $1.2 billion--compared with $100 million in 1991. And Qiu's goal is to triple Everbright's size in three years, creating an empire spanning financial services, real estate, manufacturing, and retailing. "Everbright has woken up," says Deputy General Manager Alexis Wong.
FEW ENEMIES. Everbright has plenty of company on the takeover trail in China. The intensifying campaign to reform state enterprises has triggered a nationwide fire sale of assets. Everyone from state-run companies such as China International Trust & Investment Corp. to Morgan Stanley & Co. is amassing war chests. But the biggest players are well-connected ethnic Chinese tycoons such as Indonesia's Oei Hong Liong, Thailand's Dhanin Chearavanont, and Hong Kong's T.T. Tsui.
Thanks to Qiu, Everbright boasts guanxi--connections--galore. A former vice-governor of the People's Bank of China, Qiu is regarded as a shrewd and decisive manager with few political enemies. She has recruited dozens of rising stars at Chinese banks, many of them with foreign experience. Nearly 90% of Everbright's 300 staff members are under 40 with college educations. One of her top hires is 39-year-old Wang Yake, a key central bank official. Now president of Everbright's Hong Kong subsidiary, he's the group's top dealmaker.
The new team has helped Everbright recover from earlier mistakes. Formed in Hong Kong in 1983, the company stumbled badly at the end of the decade. Its biggest bungle was backing out of a $120 million property deal with Hong Kong billionaire Li Ka-shing in 1984 that then skyrocketed in value. And it picked some losers. From 1987 to 1991, Everbright racked up $100 million in losses, as annual sales plunged from $647 million to $97 million. To top it off, former Chairman Wang Guangying, a confidant of deposed party chief Zhao Ziyang, supported the protesters in Tiananmen Square. Nine months after the 1989 massacre, Wang was replaced by Qiu.
To get back on track, Qiu built a lucrative foreign-exchange brokerage and raised $50 million from foreign banks. With the proceeds, Evergreen scored quick profits in China's red-hot stock and property markets. When the markets overheated in 1993, Everbright turned to corporate takeovers. It spent $145 million to acquire four publicly listed holding companies in Hong Kong and Singapore involved in real estate, retailing, and consumer electronics.
These companies are now being used as vehicles to mount takeovers in China. Newfoundland International Co., acquired last spring and renamed China Everbright International Ltd., bought a 55% stake in Xinxing Pipes Co., an iron tube plant in Hebei province, and is close to buying a major pharmaceutical company.
NEW MOLD? Qiu has big plans in finance. Everbright last year paid $60 million for 20% of the $1.2 billion International Bank of Asia Ltd. (IBA), the Hong Kong subsidiary of Arab Banking Corp. Decision-makers in Beijing are helping their friends at Everbright--the company won approval for the IBA deal in less than a week. With Beijing promising to open its market to foreign banks, IBA/Everbright is a leading candidate to become one of the first foreign joint-venture commercial banks.
The real test of how much Everbright has learned since the 1980s will come when it actually has to manage all of the businesses it has acquired. Says one U.S. investment banker in Hong Kong: "The unknown factor is whether they will be able to break out of the mold of state-run Chinese business and become entrepreneurial." Better than anybody, Everbright should know how badly things can go awry. So Qiu's confident young managers just may have what it takes to be front-runners as Chinese capitalists.
TABLE: EVERBRIGHT'S EXPANDING EMPIRE FINANCIAL SERVICES Holds stakes in a Hong Kong retail bank and in stock brokerages in several Chinese cities MANUFACTURING Owns China's largest producer of silk fabric and a small auto maker, and plans takeovers in telecom equipment PROPERTY Is developing apartment and office towers in Macao and owns hotels in Beijing and Hainan province PHARMACEUTICALS Controls two drugmakers in Sichuan and is buying another in Shenzhen DATA: BUSINESS WEEK