Orient Overseas' New Captain Battens Down The Hatches
Being the boss for a change is a role C.C. Tung relishes. For decades, he worked as loyal lieutenant to his elder brother, 60-year-old shipping magnate C.H. Tung, the man who will run Hong Kong after July, 1997. So when C.H. stepped down last year as CEO of Orient Overseas (International) Ltd. to campaign to become Hong Kong's first chief executive, his younger brother needled him, saying that there was no turning back. "If he didn't get selected, he'd have to take out an ad in the [local newspaper] or go on a long vacation," C.C. Tung says with a laugh. "He won't be back here!"
He's not likely to get an argument from his famous sibling, who has his hands full managing Hong Kong. But C.C. Tung, 54, has a management task, too: navigating the family shipping company through a rough time for the industry, while diversifying into new businesses in China. The market initially figured that C.C.'s connections, or guanxi, would guarantee OOIL's prosperity: On Dec. 11, just after C.H. Tung was chosen to lead Hong Kong, the stock jumped 13% to 77 cents. But shares drifted back to 57 cents or so, as investors realized that not even fabulous guanxi will protect OOIL from a downturn in shipping.
C.C., for his part, swears his brother will "bend over backwards" not to show favoritism to OOIL, which has about $1.9 billion in sales. But it's clear that the company wants new ventures in China to offset any weakness in shipping, and that C.H.'s good name could help. Major shippers are rapidly adding new vessels, and billing rates are expected to plummet. Analysts foresee a drop in OOIL's earnings from 22 cents a share in 1996 to 11 cents this year. So C.C. wants to boost the company's nonshipping assets to 25%, from around 10% to 15% now.
One major plan is to construct housing in China, where C.C. foresees a "tremendous" demand. He is building four residential projects in Shanghai and Hangzhou, with the investments ranging from $15 million to $60 million apiece. "The market is there, and the returns will be good--if it's a good location," he says. A soft drink and snack food business is expected to break even in four years. And OOIL is attracting more Chinese customers to its shipping service, which is more efficient than state-run rivals.
To brace for the price wars in shipping, C.C. has joined a consortium of four companies, including American President Lines Ltd., that cooperate with one another in filling vessels. The company also recently installed a $20 million computer system to help customers track their cargo via the Internet--down to the very container. "We expect some companies to go under," says William Beck, a shipping analyst with Socgen-Crosby in Hong Kong. "But OOIL isn't one of them."
TIGHT CONTROLS. Yet OOIL will hit some shoals, even in China, where guanxi does not remove all obstacles. OOIL owns a 23% stake in $1.8 billion Oriental Plaza, the planned real estate complex in Beijing. Although backed by the Tungs and Hong Kong property tycoon Li Ka-shing, the project has faced numerous bureaucratic snags. C.C. says such delays are natural in a project this size.
While he's keen on China, C.C. is not keen on bet-the-company moves. He and his brother never forget how their father overexpanded during a shipping downturn, pushing OOIL to the brink in the mid-1980s. A complex restructuring saved the day, but now the Tungs keep about $400 million in cash on hand and maintain tight financial controls.
C.C. and his older brother agree on OOIL's strategic direction, but their styles are quite different. Colleagues say C.C., who lived in New York for 20 years while running OOIL's U.S. operations, is more informal. "I feel sometimes when I talk to C.C. as if I'm talking to an American," says Chief Financial Officer Harry R. Wilkinson. Former colleagues say C.H. is a workaholic who spends weekends in the office. In contrast, C.C. finds time for his hobbies: tennis, wine, "and all kinds of music--but not acid rock," he says.
With the family patriarch preoccupied with Hong Kong's future, C.C. Tung can put his stamp on OOIL. After all, his Chinese name, Chee-chen, means "build success," while his brother, Chee-hwa, is "build China." The business remains a family affair: Three of C.H.'s children work at OOIL. But now it's up to C.C. to expand the dynasty's wealth.