Billionaire Richard Li teams up with Peter Thiel

Billionaire Richard Li has teamed up with PayPal Holdings Inc co-founder Peter Thiel (pic) to establish a US$595mil blank-check firm for acquiring one or more South-East Asian companies.

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 Li has stepped up investment in South-East Asia, agreeing to pay US$3bil 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 Inc co-founder Peter Thiel to establish a US$595mil blank-check 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 Li Ka-shing, Hong Kong’s richest man, began hedging his bets on the city before its handover to China from Britain. The younger 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 Li Ka-shing did and making it the model of his own business, ” Jen said.

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 Ltd, 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.

Best-known companies

Li and Thiel would 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 would focus on so-called new economy sectors including technology, financial services and media, and has begun discussions with potential targets, the people said.

Li, 54, brings local connections from his extensive insurance and media operations in South-East Asia, while Thiel provides his track record of picking technology winners, according to the people. Thiel was the first outside investor in Facebook Inc and also placed early bets on Spotify Technology SA and Airbnb Inc.

New economy startups faced 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 Li’s companies. But he added that Li’s knowledge of the region’s consumer appetites and patterns would work in his favour.

Li’s partnership with Thiel stemmed from a casual meeting in Hong Kong in 2015, the people said. Thiel was touring China, where his book “Zero to One” sold well, and connected with well-known entrepreneurs including Li, the people said.

A representative for Li declined to comment. Thiel and his representatives didn’t respond to requests for comment.

‘Money grab’

Blank-check firms have raised a record US$71.2bil in initial public offerings (IPOs) on US exchanges so far this year, or about 46% 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 Li, who buy founder shares that usually equal 20% 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-check companies’ founders.”

Li, who has a net worth of US$4.9bil 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, 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, 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.

More conservative

Although 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.

Li dropped out of Stanford University, 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$525mil in 1993. He founded Pacific Century Group the same year and eventually resigned as deputy chairman of his father’s Hutchison Whampoa Ltd in 2000.

“I don’t think there is anything wrong with being rebellious if it contributes to society, ” Li said of breaking away from his father in a 2018 fireside chat at the University of Hong Kong.

Big purchase

During the dotCom bubble, Li’s Pacific Century CyberWorks Ltd, now PCCW Ltd, became the largest Internet company in Asia outside Japan by market value. Then, Li outbid Singapore Telecommunications Ltd and its partner Murdoch’s News Corp in 2000 to take over Hong Kong’s then dominant phone company Cable & Wireless HKT Ltd.

The acquisition burnished his reputation as a dealmaker, but Li borrowed US$12bil from more than 30 banks to fund the purchase. When the dot-com bubble burst, PCCW’s shares plunged.

Partly to pare debt, Li sold 20% of the company’s stock in 2005 to state-owned China Network Communications Group Corp, which was later acquired by China Unicom Hong Kong Ltd. The group remains PCCW’s second-largest shareholder with a stake of about 18%.

The troubles surrounding PCCW brought some tensions within the Li family into public view.

Very dissatisfied

After China Network blocked Li’s attempt in 2006 to sell PCCW assets to overseas investors, Francis Leung, a former banker who had worked closely with Li’s father, offered to buy Li’s stake in PCCW. It later came to light that the older 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 Leung’s proposal rejected by minority shareholders in his investment company – which it was.

“Had I known of Mr K.S. Li’s involvement, I would have at very least removed myself from the negotiations, ” Richard Li said in a 2006 letter to a legislative panel probing the sale.

Despite the drama, Li Ka-shing said in 2012 that he would provide funding “any time” to his son’s ventures.

Later that year, the younger Li announced the acquisition of some of Amsterdam-based ING Groep NV’s Asian insurance units, which then became his acquisitive FWD Group Ltd.

“A lot of resources that he has received were from his father, ” 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.”

Share sale

Now, as 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 Inc, JPMorgan Chase & Co and Morgan Stanley to work on a share sale that could raise as much as US$3bil, 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 would 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.” — Bloomberg

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