Henderson Cyber, an internet and technology company spun off by Hong Kong property developer Henderson Land, raised HK$937.5 million ($120 million) in its initial share offering, the low end of its target, as uncertainty over the company's growth prospects weighed against investors' enthusiasm for Henderson Land chairman Lee Shau-kee û one of Hong Kong's richest men.
Henderson Cyber priced the 750 million shares on offer at HK$1.25, having set a range of HK$1.20 to HK$1.40. The shares begin trading Friday on Hong Kong's Growth Enterprise Market. The company was formed in January this year to combine the technology interests of Henderson Land with those of the Hong Kong & China Gas Company, known as Towngas. Henderson Land holds a 33.7% stake in Towngas, which is Hong Kong's biggest gas supplier.
The company's launch comes as many hi-tech stocks continue to slide. The Growth Enterprise Index, a measure of the Growth Enterprise Market, has fallen 57% since mid-March. And Henderson Cyber has no track record as an independent entity. It grew out of Henderson's own design unit, Future Home, which has only ever done work for Henderson.
"It's not what I would call a track record," says David Webb, editor of Webb-site.com, a financial analysis site. "The exchange has waived the track record to zero. It's the same sort of thing that happened with Tom.com and Sunevision."
High hopes
Yet Henderson Cyber now has ambitions to be everything from set-top box provider to internet service company to software and applications provider to data centre and wireless phone network provider. It aims to become "a leading integrated internet, telecommunications and high-technology service provider in Hong Kong, offering end-to-end high technology solutions to commercial and residential customers". So far almost none of the infrastructure for such an ambition has been built or paid for. Hence the IPO.
"What they're doing is asking the public to pay for all this in return for just 15% of the equity, which isn't fair," says Webb.
Over the past few months, Henderson and Towngas, the two main shareholders, paid HK$139.9 million, or an average of HK$0.033 a share for the 85% stake in the company they now own. The public paid HK$1.20 a share and stands to reap just a fraction of the rewards, if there are any. And Henderson's lack of experience in technology could cause it to flounder in a competitive market, analysts say.
"This company has very few distinguishing characteristics so I don't see investors getting very excited about it," says Trevor Cheung, an analyst at Indosuez W.I. Carr in Hong Kong. "Since the market for tech stocks crashed only something like this that's carrying the Lee family name could go through."
The company is coming late to the various sectors it plans to enter. The portal business is already considered overcrowded by many analysts (there are 178 internet service providers in Hong Kong) and business-to-consumer models are the most warily regarded of all.
Henderson Cyber's portal, called iCare, aims to offer Hong Kong housewives the ability to shop online either through a PC or through a set-top box-enabled TV. iCare only began offering products last month. As a result it has no idea whether it will be able to handle mass trading volume should it occur. Right now its set-top boxes haven't even been made. They are being produced in conjunction with Beijing-based Legend and Microsoft of the US.
The company expects to launch them in the third quarter of this year. Consumers will have the option of renting a box for about HK$100 a month or buying it outright.
Henderson Cyber is banking on its ability to 'bundle' internet services, installation and online shopping with its set-top box in a way that currently doesnÆt exist. It is also banking on tapping Towngas's 1.3 million customers and the 55,000 households living in properties managed or owned by Henderson to give it a jump start. But Henderson Cyber itself admits that Hong Kong housewives may not be amenable to buying online.
"In Hong Kong, shopping is perceived as a leisure pursuit and shopping centres a pleasant alternative to the confines of a small apartment," the company says in its prospectus.
As an added enticement, iCare will offer information and entertainment, radio programmes, a cooking channel, an electronic personal assistant and online financial services.
If that doesn't work, Henderson Cyber hopes to be successful with its as yet uncreated data centre business, to be combined in a company called HDC. The company, which was incorporated in March this year, plans to establish at least three data centres in Hong Kong, using mainly capital generated from the IPO to build them. It then plans to offer a range of services for small to large businesses, including web hosting and consultancy.
Eastar bonus
Henderson Cyber also plans to establish a local wireless fixed telecommunications network service through its Eastar unit. Eastar was awarded a local wireless FTNS licence in February this year. Once established the network will be able to deliver high-quality broadband traffic to commercial and residential customers. It plans to launch the service around March 2001. Still, the company may not be able to gain the rights of access to roofs to install the hubs that it needs.
If all that weren't enough, the company plans to expand its Future Home infrastructure design business, and invest in other IT companies. Since March it has made investments in Adsale, Roctec and Cycom.
Of the money raised in the IPO the company expects to spend roughly HK$210 million on the development and acquisition of set-top boxes, about HK$10 million on developing and licensing software and about HK$30 million on advertising for iCare. Another HK$230 million will be spent to refurbish and equip the HDC data centres and about HK$300 million will be used to acquire telecommunications network infrastructure and equipment.
HSBC sponsored the share sale. HSBC and CLSA were joint lead managers.
