A company worth being seen with

VIEW FROM HONG KONG

As dreams go this one was pretty predictable - an all-encompassing Chinese house, like the British-controlled Swires or Jardines conglomerates. The Brits are, after all, on the way out and the Chinese on the way in, so it seemed only natural that the new order be reflected in a Chinese company enjoying the pre-eminence once accorded to the so-called hongs which used to dominate the colony.

The dream was supposed to become reality with the establishment of a listed company called Citic Pacific, a subsidiary of the Chinese state- owned China International Trust and Investment Corporation, established by Rong Yiren, who is now one of China's vice-presidents. His son, the golf- and horse-loving Larry Yung, was dispatched to run the show and a queue of Hong Kong businessmen lined up to do business.

First in the queue was Li Ka-shing, reputedly the richest man in Hong Kong, who linked his Cheung Kong group with the new entity. Other heavyweights, such as the sugar, media and property tycoon Robert Kuok, piled in. Citic Pacific was off to a flying start. Even the big British conglomerates beat a path to Citic Pacific's door.

A regional magazine columnist expressed the opinion that in the "not too distant future" Citic Pacific would supplant Swire Pacific, Jardine Matheson and Li Ka-shing's own Hutchison Whampoa as "the hong to watch".

That was four years ago, but things have not quite worked out like that. Citic Pacific spent its formative years buying stakes in all manner of companies but without a clear strategy nor, it seemed, a notion of being much more than a warehouse for holding stakes in some of the colony's largest companies. The one company Citic Pacific bought and managed itself, Dah Chong Hong, a trading company, has started to bleed red ink all over the balance sheet.

However Citic Pacific's record neither stopped the rise of its share price nor thwarted its impressive ability to raise funds in the market. No sooner was it listed than it came back to the market with a placement raising the HK$2.2bn (pounds 188m) it needed to buy Hang Chong, the company controlling Dah Chong Hong.

In 1993 Citic Pacific was back again with a HK$7.17bn placement, to allow it to buy a clutch of companies from its parent and a 12 per cent stake in Cable and Wireless's Hongkong Telecom. It also bought a 12.5 per cent in Swire's Cathay Pacific Airways, again obligingly financed by the market.

Companies are keen to have Citic Pacific as a shareholder because they believe it provides political insurance. They like to have the Chinese controlled company as a joint-venture partner because they see this as a good way of securing tenders and attracting funds for developments.

So Citic Pacific is in the happy position of turning away attractive investment possibilities. It is involved in banking, credit cards, telecommunications, trading, property development, infrastructure projects and a host of other projects.

As the company has grown Larry Yung has become a very rich man indeed. Last May he sold share options for a total of HK$198.8m ( pounds 17m) to Citic Hong Kong (Holdings), the privately held company which controls Citic Pacific.

Shareholders in Hong Kong are not fazed by directors cashing out of their companies and Citic Pacific is now trading on a p/e ratio of over 20 times, roughly twice the market average, meaning that investors believe the capital growth of their shareholding will far outstrip its immediate earnings potential.

However some doubts are beginning to surface. The company seems to recognise that it needs to assume a more proactive role in managing its assets.

This may be why it recently embarked on another cash-raising spree, building up a battle chest for acquiring new projects. Last October it raised HK$2.4 bn from a syndicated loan, taking the opportunity to deny that there would be a further placement. Denials of this nature are commonplace in Hong Kong so a placement three months later, which added HK$3.24bn to the coffers, came as no surprise.

Meanwhile Citic Pacific began judiciously selling assets, reducing its holdings in Hongkong Telecom, Cathay and the development of the former British military headquarters, which occupies a prime property site. The sum total of all this effort was almost HK$10.5bn in cash.

Meanwhile, the jury is still out on what Citic Pacific really intends to do to establish itself as the first among hongs.