Leadership profile. Francis Leung

Transcription

1 Leadership profile Francis Leung Francis Leung, who was appointed Chairman of the CHKLC in June 2015, is currently also Chairman (Greater China) of CVC Capital Partners 16 March 2016

2 aplus WHEN THE CHIPS ARE DOWN Francis Leung, the outspoken Chairman of the Chamber of Hong Kong Listed Companies, tells George W. Russell that the city s financial sector has a lot to be proud of, but urges rapid innovation to keep up with the times Photography by Juliet Shayne Lui T hree decades ago, Francis Leung was one of the most enthusiastic voices urging the listing in Hong Kong of shares of Mainland companies incorporated outside China. Indeed, he is still sometimes referred to as the father of the red chips, as the stocks came to be called. Today, as Chairman of the Chamber of Hong Kong Listed Companies, Leung remains a vocal supporter of the financial sector. We have been very successful, even up to now, he says, but cautions that despite recent stock market plunges, closer cooperation between Hong Kong and the Mainland is the key to a prosperous future. It s logical for Hong Kong to increase economic ties with China, and Hong Kong is best positioned to serve the Chinese market, he says. I think what Hong Kong has is really the label, the infrastructure, the rule of law and transparency, but then you tap into the ecosystem in China. Leung, who is Chairman (Greater China) of CVC Capital Partners, the global private equity group, believes that a fundamental impediment to the growth of Hong Kong s capital markets is that companies from outside the Greater China region have little incentive to list here. I think it s quite difficult for Hong Kong to attract companies from the U.S. or from Europe or even from Asia, he says. Hong Kong has tried but failed with secondary listings, unless those companies have a China or Asia angle. Leung speaks from experience, recalling the successful June 2011 initial public offering by U.S. luggage maker Samsonite, which CVC owned. Samsonite generated a lot of investor interest because its product is well known in Asia and its growth has been principally derived from the tourism boom in China, he observes. (Samsonite debuted at HK$14.50 and closed on 29 February at HK$22.45, up about 55 percent). As a result, Leung concludes, there won t be many more like Samsonite, citing the much less successful Prada IPO in Hong Kong that same month. The Milan-based fashion house debuted at HK$39.50 a share, and closed on 29 February at HK$22.75, 42 percent down. Hong Kong is facing a lot of challenges, says Leung. If you look at Hong Kong IPOs in the past five years, many have been companies in traditional industries, the old economy. We should try to attract different kinds of companies to come to the market and one sector that Hong Kong has missed is technology. Hunger for innovation Leung was an early fan of Chinese tech stocks. After a career with Citicorp, he cofounded Peregrine Investments Holdings in 1988 and helped launch the first red chip in The risk-taking Peregrine crashed in the Asian financial crisis, but Leung continued there under BNP majority ownership until He later established himself as an independent investor through stakes in such tech pioneers as e-commerce site 360buy.com (now JD.com), the 91 Wireless (now part of Baidu) and peer-to-peer March

3 Leadership profile Francis Leung lender Dianrong. Leung returned to Citigroup from 2001 until He joined CVC in 2007 as a senior adviser. Over those years he has seen Shenzhen eclipse Hong Kong as a technology hub, which frustrates him given the homegrown talent available. Look at Da-Jiang Innovations Science and Technology, which manufactures drones. Some of the founders were educated at Hong Kong University of Science and Technology but they did not establish DJI here, but in Shenzhen. Leung notes that a decade ago Shenzhen faced a crisis. As its hinterland offered cheaper land and cheaper labour, the city faced a hollowing out of its economic base. People were concerned about Shenzhen because manufacturers moved out, but it successfully transformed itself into a high-end and innovative manufacturing centre. Moreover, he adds, the Mainland has another competitive advantage: its young people. For entrepreneurship, you need people who are hungry and who have dreams. Hong Kong people are too well off. You compare the youth in Hong Kong and China, China is more vibrant and people there are hungrier for success and more entrepreneurial. Leung also compares Hong Kong s entrepreneurship unfavourably with that of the U.S. In the 1950s and 1960s, Hong Kong had a lot of entrepreneurs but they were immigrants and Hong Kong hasn t had any major wave of immigration for many years. 18 March 2016 Look at the U.S. Each year it attracts a lot of people from India, China, Eastern Europe and South America and these immigrants bring entrepreneurship. The government s proposed Innovation Bureau is only a start, says Leung. It s a good move for Hong Kong to put emphasis on the technology sector finally, Hong Kong has made a move, he says. You can see that the earnings of companies in the old economy have declined faster than those in the new economy. As Chairman of the For entrepreneurship, you need people who are hungry and who have dreams. Hong Kong people are too well off.

4 aplus CHKLC he was elected in June 2015 for a two-year term, succeeding Patrick Sun, a Hong Kong Institute of CPAs member Leung hopes to help change Hong Kong s capital markets. Shared priorities Leung hopes to use his extensive contacts to bring stakeholders together. I have been in the investment banking business for almost 30 years, and built relationships with a large number of listed companies and still maintain contact and dialogue with them, so it is quite natural for me to fill such a position, he says of his CHKLC chairmanship. The chamber, established in 2002, represents 221 of the 1,631 member companies listed on the Hong Kong stock exchange, but those stocks account for more than 40 percent of the bourse s total market capitalization. Leung chairs the chamber s 25-member General Committee. The committee members are senior executives coming from a wide range of companies, including local blue chips, medium- and small-sized companies, as well as large red chips and H-share companies, he says. This gives the chamber the breadth of viewpoints and depth of experience when discussing market and policy matters. The CHKLC maintains regular dialogue with the Institute, covering such topics of mutual interest as the regulatory regime for listed entities auditors and the roll-out of the Institute s enhanced audit report, which addresses better March

5 Leadership profile Francis Leung Leung has more than 30 years experience in investment banking 20 March 2016

6 aplus Hong Kong investors, in general, do not know how to value companies with no earnings or that are making a loss. So we need to educate investors. confidence and transparency, as well as communication between auditors and investors. This allows the two organizations to better understand the issues at stake and to address any concerns, says Leung. There is a certain overlap between our objectives and those of the Hong Kong Institute of CPAs, he adds. We need to maintain investor confidence in listed companies. Corporate governance is a shared concern. We work together to advocate good corporate governance practices and the Institute is a supporting organization for our annual Hong Kong Corporate Governance Excellence Awards, he says. We are both embracing a spirit of openness, transparency and accountability to shareholders. Leung says Institute members are trusted partners, occupying important positions in CHKLC s committees. Our Financial and Regulatory Affairs Committee is responsible for responding to market consultations, says Leung. This comprises our General Committee members as well as market professionals such as lawyers and accountants. Investors, says Leung, now place more emphasis on the integrity of financial information. We need to make sure the financial information reflects fairly and truly the positions of our members, he says, adding that financial scandals such as the accounting-related fraud at several Chinese companies listed in the U.S. and Canada in affected confidence in the entire China sector. Changing the game Leung says he is optimistic about Hong Kong s future as an international finance centre. Hong Kong has been consistently one of the world s top five markets in terms of capital formation over the past 10 years and that s something we should be proud of, he notes. To build on the city s success, he hopes to harness the chamber s combined expertise to push two major reform planks. One is to reform our market listing rules in order to be more accommodative to companies from the new economy, he says. About 70 percent of Chinese companies, mostly in the technology sector, that have listed outside China use weighted voting rights, a dual structure sought by Alibaba, which chose New York over Hong Kong for its IPO in Leung is concerned that such differences mean New York is attracting Chinese companies that should be listing in Hong Kong. I think American investors are less familiar with Chinese companies than Hong Kong investors, but you can still see that many Chinese companies, especially those in the technology, media and telecommunications sector, have raised big sums of money in the U.S. The second priority, says Leung, is to educate Hong Kong investors on how to value companies in the new economy. U.S. investors, he notes, place higher valuations on young companies that have not yet shown earnings. Hong Kong investors, in general, do not know how to value companies with no earnings or that are making a loss. So we need to educate investors, he notes. Leung is also concerned about the weighting of Hong Kong-listed Chinese companies in international portfolios. You can see that now MSCI China has added Chinese companies listed in the U.S. American depositary receipts such as Alibaba, JD and Baidu. So in comparison the weighting of the Chinese companies listed in Hong Kong has decreased. Now, Leung adds, there is speculation that A-shares will be added to the MSCI. Then the weighting of Chinese companies listed in Hong Kong will decrease even further, he says. That s why we really need to look and see how we can maintain or increase our weighting because it means the significance of the Hong Kong market has declined it s that simple. The next phase for Hong Kong s capital markets might not be as groundbreaking as the introduction of red chips, but to Leung it could be just as vital. We certainly would like Hong Kong capital markets to be important and diversified and attract more players. The chamber as a market participant, wants Hong Kong to play a bigger role and not be marginalized. Since 2007, the Chamber of Hong Kong Listed Companies organizes the annual Hong Kong Corporate Governance Excellence Awards jointly with the Centre for Corporate Governance and Financial Policy of Hong Kong Baptist University to advocate sound corporate governance. March