PCCW-HIKARI !!!!!!!!

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PCCW-HIKARI !!!!!!!!

Asia Week on PCCLF/Hikari Tsushin deal- now HTI-

Money to Burn
Hong Kong and Japan converge in a Net investment bloc

PCCW's Li, left, and Shigeta of Hikari Tsushin exchange a golden handshake
Daniel J. Groshong--Tayo Photo Group for Asiaweek

When Richard Li Tzar-kai early last year announced plans to build a modern campus that would make Hong Kong a regional information technology hub, more than a few local observers thought the initiative a bit disconnected. Hong Kong is a financial center and a trading entrepot. But it has almost no native technology industry to build on, nor were foreign software or hardware makers likely to set up headquarters or manufacturing plants in the pricey Chinese city. A more likely digital destination seemed to be Singapore, owing to its genteel standard of living and well-articulated government policies stimulating the technology sector.

However, thanks to an influx of venture Capital, a bustling new stock market for start-up companies and scores of blossoming Internet ventures, Hong Kong's bid to kindle an IT industry is looking anything but misguided. The latest coup: a tie-up between Li's Pacific Century CyberWorks (PCCW) and Hikari Tsushin Inc., Japan's second largest Internet investment company. That should help to establish the SAR as a breeding ground for e-commerce companies.

The deal calls for PCCW and Hikari to jointly acquire Hong Kong-listed battery maker Golden Power International Holdings, with the Japanese company holding 51% and PCCW 20% (the remainder is held by previous owners and individual shareholders). Renamed Hikari Tsushin International (HTI), the new entity will be used as an investment vehicle to launch e-commerce initiatives in Hong Kong and throughout Southeast Asia.

HTI seems destined to become a major player by dint of the market capitalization of its parents. Hikari, which has as its core business a chain of 1,920 mobile phone retail stores in Japan, is worth an estimated $47 billion, making it 10th-largest company on the Tokyo exchange. PCCW shares are worth about $18 billion (Japan's Softbank, Asia's pre-eminent Net investor, has a stunning market cap of roughly $94 billion). Stock market capitalization is an important benchmark, because many cyber-deals are consummated through an exchange of shares. Investment Capital is abundant; PCCW alone has some $200 million in cash.

Hikari's arrival "signifies Hong Kong's leadership role as a cyber-base in Asia," declares Li - who also got the Japanese company to commit to future tenantship in his $1.6 billion Cyber-port project, joining Microsoft, Sun Microsystems, Oracle, Cisco Systems and Softbank. Merrill Lynch analyst Matei Mihalca does not go quite that far, but he agrees that Hong Kong's private investment environment "is becoming more supportive of the Internet." Singapore, says Mihalca, "hasn't made as many efforts [in the private arena]. Most have been initiatives by the government and universities." Singapore last year established a $1 billion fund to foster "technopreneurship." The Lion City's best-known private source of Internet venture funding is PC soundcard maker Creative Technology's $50-million war chest.

"Hong Kong is a very big financial center," says Shigeta Yasumitsu, Hikari's 36-year-old CEO, "and Pacific Century CyberWorks is a wonderful company. That's why we chose Hong Kong." Li's legendary clout was a big draw. The 33-year-old son of Hong Kong tycoon Li Ka-shing travels in international business circles and is a prolific dealmaker. The two men professed friendship during a press conference announcing the partnership.

Mihalca says the partnership benefits both. PCCW gains access to the Japanese market and greater exposure to the budding marketplace for wireless delivery of Internet content via mobile phones. Li's company started out with ambitions to serve high-speed Internet access to much of Asia via satellite. But PCCW has rapidly expanded to become a leading Net investor second in Asia only to Softbank. "It could be argued that in the last month PCCW has come of age as a global Internet player," Mihalca wrote in a recent report on the company.

Meanwhile, Hikari enlarges its footprint in Hong Kong, China and Southeast Asia. The company has already sunk some $100 million in numerous regional start-ups, among them Hong Kong Net portal developer Outblaze.

Skeptics question whether Hikari's move is wise given that it can just as easily invest in Asia from its home base in Japan. Some maintain that Hong Kong, with 6.8 million people, doesn't have the mass to generate enough worthy investments to justify Hikari's listing there. Not so, says Shigeta, a college drop-out who founded Hikari in 1988. "There are many companies to look at, and there will be more to follow," he says. Li has estimated the SAR is now home to some 300 IT start-ups, most of them formed in the last 12 months.

Besides, Hikari is looking not solely to Hong Kong but to the mainland - where Li has many ties - for future investment candidates. "Needless to say there are various restrictions for investing in the Internet in China, but the rules are changing," Shigeta says. "We have to establish a foothold here."

Singapore, of course, lacks Hong Kong's proximity to China, a country expected to become the largest Internet market in the world within the next five to 10 years. But Hikari's choice has not dampened expectations that Singapore will continue to compete as an e-commerce hub. "Hong Kong and Singapore each have their strengths, and I do not see this competition as a zero-sum game," says Wong Toon King, chairman of SilkRoute Holdings, a leading e-commerce company. "Hikari Tsushin's move into Southeast Asia is good news for many aspiring start-ups throughout the region."

Wong speaks from experience. His Singapore-based SilkRoute Ventures subsidiary took on a $26 million investment from PCCW last year. After all, the Internet investment game is not necessarily about where you make your bed. It's about who you are in bed with.

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