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Li Ka-shing's son partners Peter Thiel to set up US$595m blank-cheque company
[HONG KONG] Billionaire Richard Li, who broke away from his famous father Li Ka-shing decades ago to build his own business empire, is taking a page out of his dad's playbook by further expanding outside Hong Kong.
Since last year, the younger Mr Li has stepped up investment in South-east Asia, agreeing to pay US$3 billion for a Thai insurance business and extending his insurance operations in Vietnam and Indonesia. He was part of a bid for a digital-banking permit in Singapore and - most recently - has teamed up with PayPal Holdings co-founder Peter Thiel to establish a US$595 million blank-cheque firm for acquiring one or more South-east Asian companies.
The moves come at a time of Hong Kong political uncertainty that echoes the late 1980s and 1990s, when Mr Li Ka-shing, Hong Kong's richest man, began hedging his bets on the city before its handover to China from Britain. The younger Mr Li may have struck out on his own, but he has learned risk management from his father, said Marshall Jen, project director of the Chinese University of Hong Kong's Centre for Family Business.
"He is now taking the experience of what Mr Li Ka-shing did and making it the model of his own business," Mr Jen said.
Mr Richard Li is also getting in on one of the hottest trends in global finance with the creation of a special purpose acquisition company (SPAC). Bridgetown Holdings, which listed on the Nasdaq in October, will seek to bring companies public by acquiring them. It's the same approach followed by other SPACs, such as those associated with billionaire investor Bill Ackman and former US House speaker Paul Ryan.
Mr Richard Li and Mr Thiel will first consider South-east Asia's best-known companies, people familiar with their partnership said, asking not to be identified as they aren't authorised to speak publicly on the matter. Bridgetown will focus on so-called new economy sectors including technology, financial services and media, and has begun discussions with potential targets, the people said.
Mr Richard Li, 54, brings local connections from his extensive insurance and media operations in South-east Asia, while Mr Thiel provides his track record of picking technology winners, according to the people. Mr Thiel was the first outside investor in Facebook and also placed early bets on Spotify Technology and Airbnb.
New economy startups face difficulties succeeding in South-east Asia due to the different languages, cultures, legal environments and consumer habits across the region, said Vincent Lam, chief investment officer of Hong Kong-based VL Asset Management, which has no holdings in MrRichard Li's companies. But he added that Mr Richard Li's knowledge of the region's consumer appetites and patterns will work in his favour.
Mr Richard Li's partnership with Mr Thiel stems from a casual meeting in Hong Kong in 2015, the people said. Mr Thiel was touring China, where his book Zero to One sold well, and connected with well-known entrepreneurs including Mr Richard Li, the people said.
A representative for Mr Richard Li declined to comment. Mr Thiel and his representatives didn't respond to requests for comment.
Blank-cheque firms have raised a record US$71.2 billion in initial public offerings (IPOs) on US exchanges so far this year, or about 46 per cent of all IPOs. They're seen as a way for companies to avoid the costly and time-consuming IPO process amid the uncertainties of the coronavirus pandemic. They're also appealing to sponsors such as Mr Richard Li, who buy founder shares that usually equal 20 per cent of the company's outstanding stock for a small consideration.
But SPACs have also come in for criticism. Activist short seller Carson Block's Muddy Waters Capital called them "the great 2020 money grab", arguing that "a business model that incentivises promoters to do something - anything - with other people's money is bound to lead to significant value destruction on occasion". "Personally, I wouldn't buy when they haven't announced any targets," Andy Wong, a fund manager at LW Asset Management in Hong Kong, said on investing in SPACs. "But the most important thing is how much investors trust the M&A capability of the blank-cheque companies' founders."
Mr Richard Li, who has a net worth of US$4.9 billion according to the Bloomberg Billionaires Index, is seeking to expand his empire outside Hong Kong at a time of turmoil for the city as China cracks down on dissent.
Amid months of anti-Beijing protests last year, Mr Richard Li was weeks behind some other tycoons, including his father, in issuing a personal statement calling for the resumption of social order.
At the same time, Mr Richard Li has been careful not to offend the Chinese government. He's one of the members of the pro-establishment Hong Kong Coalition, founded earlier this year by former chief executives Tung Chee-hwa and Leung Chun-ying to promote social stability.
Although Mr Richard Li publicly voiced support for universal suffrage in 2006, he has taken a more conservative approach during the recent protests, said Dixon Sing, a professor at the Hong Kong University of Science and Technology who specialises in politics.
Mr Richard Li dropped out of Stanford University, Mr Thiel's alma mater, in 1987 and later joined his father's group. But instead of inheriting a part of the ports-to-retail conglomerate, he decided to build his own empire.
He launched Star TV, before selling a controlling stake to Australian media mogul Rupert Murdoch's News Corp for US$525 million in 1993. He founded Pacific Century Group the same year and eventually resigned as deputy chairman of his father's Hutchison Whampoa in 2000.
"I don't think there is anything wrong with being rebellious if it contributes to society," Mr Richard Li said of breaking away from his father in a 2018 fireside chat at the University of Hong Kong.
During the dot-com bubble, Mr Richard Li's Pacific Century CyberWorks, now PCCW Ltd, became the largest Internet company in Asia outside Japan by market value. Then, Mr Richard Li outbid Singapore Telecommunications and its partner Murdoch's News Corp in 2000 to take over Hong Kong's then dominant phone company Cable & Wireless HKT.
The acquisition burnished his reputation as a dealmaker, but Mr Richard Li borrowed US$12 billion from more than 30 banks to fund the purchase. When the dot-com bubble burst, PCCW's shares plunged.
Partly to pare debt, Mr Richard Li sold 20 per cent of the company's stock in 2005 to state-owned China Network Communications Group Corp, which was later acquired by China Unicom Hong Kong. The group remains PCCW's second-largest shareholder with a stake of about 18 per cent.
The troubles surrounding PCCW brought some tensions within the Li family into public view.
After China Network blocked Mr Richard Li's attempt in 2006 to sell PCCW assets to overseas investors, Francis Leung, a former banker who had worked closely with Mr Richard Li's father, offered to buy Mr Richard Li's stake in PCCW. It later came to light that the older Mr Li was involved in the deal. His son told local newspaper Ming Pao that he was "very dissatisfied" and would be "very happy" to see Mr Leung's proposal rejected by minority shareholders in his investment company - which it was.
"Had I known of Mr KS Li's involvement, I would have at very least removed myself from the negotiations," Mr Richard Li said in a 2006 letter to a legislative panel probing the sale.
Despite the drama, Mr Li Ka-shing said in 2012 that he would provide funding "any time" to his son's ventures.
Later that year, the younger Mr Li announced the acquisition of some of Amsterdam-based ING Groep's Asian insurance units, which then became his acquisitive FWD Group.
"A lot of resources that he has received were from his father," Mr Jen of the Chinese University of Hong Kong said. "Richard Li's ability, characteristics and vision are top-notch. But he also had a very good start."
Now, as Mr Richard Li proceeds with his plans to buy one or more South-east Asian companies through the SPAC, he's also looking to take his insurance empire public. FWD has chosen Goldman Sachs Group, JPMorgan Chase & Co and Morgan Stanley to work on a share sale that could raise as much as US$3 billion, people familiar with the matter said in September. FWD is also awaiting a licence to prepare for establishing a life insurance joint venture in mainland China.
Time will tell how successful these overseas expansions will be, whether they're a wise diversification away from Hong Kong, and whether the SPAC model is here to stay. In the meantime, one private equity executive who worked with the Li family said his hands-on approach will help his cause.
"Very much like his father, he can charm the birds from the tree," said Timothy Dattels, the managing partner of TPG Capital Asia. "He'll fly and go to see people, and that's very rare. He doesn't sit there like the king."