In April 1999, what looked like a risky property financing deal landed on the desk of SJ Wong, then head of BNP Prime Peregrine's equity capital markets division. It would turn out to change the face of Asia's technology and telecommunications industry and, in the process, transform the career of the man who brought it to market.
The deal came from a Singapore-listed company called Pacific Century Regional Development (Pacific Century), controlled by Richard Li, the son of Hong Kong tycoon Li Ka-shing. Li wanted to execute a reverse takeover of Tricom, a Hong Kong-listed telecommunications equipment manufacturer, by injecting some property assets into it and would then change the company's name to Pacific Century CyberWorks (PCCW). The property assets comprised some projects in mainland China and the right to develop a Hong Kong technology park called Cyberport, for which Pacific Century had been given the development rights.
Wong and his boss, Francis Leung, vice-chairman of BNP, had developed reputations for executing reverse takeovers, and Leung had a strong relationship with the Li family. So it was BNP and HSBC that were asked to manage the transaction. The upshot was that Pacific Century agreed to buy new shares and convertible notes issued by Tricom for HK$2.46 billion ($315.5 million), giving the Pacific Century Group a 75% stake.
Prior to the deal's announcement, Tricom's shares were suspended from trading at HK$0.136. Within 10 minutes of the resumption of trading they jumped to over HK$3.00 and closed that day at HK$1.84 û a gain of 1,245% from the suspension price. The PCCW phenomenon was born, and with it the boom in Asian technology stocks.
The transaction marked a turning point in the career of Wong, who was credited with masterminding the strategy. "The deal was very visible and on the back of that success we went on to originate and close many deals in the tech sector," Wong says. These included fundraising for New World Cyberbase, e-New Media and Sino-i.com.
"SJ Wong has an incredible knack of being able to get in on some of the bigger deals," says Antonio Tambunan, an analyst at Deutsche Bank. "He has this ability to get into the thick of things."
A rolling stone
In spite of his success at BNP, by September, Wong, 34, was ready to move on. The notoriously restless financier has rarely remained more than 18 months in any job. He had an idea for a new project and it wasn't compatible with the culture or structure of BNP. He and a partner, Jenny Tam, set up e2-Capital (for Electronic to Capital Market), an online investment bank and technology consultancy. The idea was to cut out the hundreds of salespeople involved in pitching new deals to investors and do it over the internet. Not only would this cut costs, it would be more transparent to investors and brokers. He got the idea from looking at companies such as WIT Capital of the US.
"On a hot deal the lead bank typically retains most of the shares for its favourite clients and the syndicate members get nothing," Wong says. "Our long-term goal is to promote a fairer, merit-based system."
The big, mainly US investment banks who typically lead manage large equity offerings argue that having spent months bringing a client to market they are entitled to reap most of the fees. Still, by October Wong started setting up OpenIBN, a business-to-business platform linking brokers and investors, which is due to begin operations soon.
Using OpenIBN, e2-Capital will initiate an equity offering and post the size of the issue, its price and, in the case of an IPO, initial prospectus, on its website. Investors wishing to bid for shares sign up with one of the brokers registered with OpenIBN. The brokers then bid online where everyone can see who is bidding and at what price. e2-Capital carries the underwriting risk, while the broker carries the settlement risk. The advantage for the investor is that he is not obliged to open an account with e2-Capital in order to get a slice of the pie.
"It's an open system so other brokers can also bring deals and put them on the system," Wong says. "In phase two we also plan to conduct roadshows online on behalf of clients. We'll upload the roadshow video onto our site and investors will be able to e-mail questions and even conduct real-time meetings through video-conferencing."
Virtual reverse takeover exchange
Wong's company has become a 'virtual' exchange for reverse takeovers or backdoor listings on the stock exchange. In a reverse takeover, a private company gains a listing by acquiring control of a public company via an injection of assets or cash. Wong has done 10 reverse takeovers, more than anyone else in Hong Kong except his former boss Francis Leung at BNP. They are not easy. Most companies think they are worth more than they are and most buyers think they are worth less. What Wong is good at, colleagues say, is bridging the gap between the two.
ôMore than 40% of announced reversed takeovers never materialize, which is why they aren't necessarily the way out for companies seeking a stock exchange listing without going through the process of an IPO," Wong says.
While e2-Capital will continue to execute reverse takeovers, Wong sees much of his business in the next six months coming from mergers and acquisitions as public funding for new dotcoms and technology companies dries up. He expects there to be a high-profile failure among Hong Kong's internet businesses soon and when that happens mergers and acquisitions will explode. "First, it will be the big dotcoms buying the smaller dotcoms,ö Wong says. "Then, when prices have come down even further, bricks and mortar companies will also get into the game."
Wong is not known for sticking around. It takes a lot to hold his interest. "I enjoy creating something out of nothing," he says. "Once it's developed the fun is gone. That's when I tend to move on. The rest is just maintenance.ö
To some, that's an attitude that can smack of arrogance. His fast-talking manner has been known to rub people the wrong way. But with e2-Capital he may have found a project that can keep his interest. ôIt's the sort of thing that I can add new parts to, and each new part gives me the excitement of a new start-up,ö he says. Just last week he announced plans to start up a biotechnology division, and hired HM Pang, previously executive director of Asia Healthcare Inc., to head it up. The unit will seek out, advise and invest in Chinese companies that are developing new synthetic and traditional Chinese medicines.
"SJ's like that," says William Wu, e2-Capital's corporate finance director. "Right while we're working on internet matter he gets someone from biotech to come in. I don't know who he will get in tomorrow."
Born in Kuala Lumpur Wong left to study in Singapore at the age of 12. Five years later he went to study mechanical engineering at Imperial College of Science, Technology and Medicine in the UK. He graduated with a first-class honours degree, and then joined Hewlett-Packard in Singapore for a year before deciding it "wasn't my cup of tea".
After a stint as an accountant at KPMG Peat Marwick he joined Standard Chartered Asia in Hong Kong, working in the corporate finance department. A year later he moved to ABN Amro in Hong Kong as corporate finance manager. After 18 months he joined Nomura in Hong Kong where he was head of equity syndication within the capital markets department. A year or so later he returned to ABN Amro as director and head of Greater China capital markets and 18 months later headed over to BNP as managing director, where he helped build up its equity capital markets department.
"Here in Hong Kong there's a culture of slavery in the corporate finance world," says Wu. "They throw huge amounts of work at you and the limited time frame kills the imagination of a lot of people. SJ's not like that. His imagination and creativity haven't been washed out. He's an engineer. He designs stuff."
Attracting attention
Judging by the valuation of his company Wong appears to be doing something right. He started e2-Capital with HK$5 million last September. In December Chinese internet portal Chinadotcom offered to take a 10% stake in his company. But by the time the papers were drawn up in January the company's deal flow had already caught the attention of Goodwill Investment, which agreed to pay HK$348 million for e2-Capital in a share swap that effectively gave e2-Capital a backdoor listing on the Stock Exchange of Hong Kong. Since then the company has racked up deals worth over $600 million from clients such as Softbank, Chinadotcom, the Koo's Group and e-New Media.
Still, it's a business model that analysts say is easy to copy, and he could face competition sooner rather than later. "There's nothing to stop any of the big guys, the Goldman Sachs' of the world, from doing this," Tambunan says.
Wong thinks he can stay ahead of the game. His company has HK$220 million in uninvested capital and expects to have another HK$400 million from the pending sale of Goodwill's property portfolio. In 1999 Goodwill had revenue of HK$163 million and net profit of HK$16 million. Jardine Fleming analyst Winston Sim expects the company to make HK$245 million in revenue this year and HK$107 million in profit.
"I'm both a financier and originator," says Wong. "At e2-Capital we originate our own deals by using our different skill sets to put companies together and to bring them to the market."
