Thursday, January 29, 2015

Book Review – Gordon Wu - The Man Who Turned the Lights On

In my research and investing I stress three things: people, structure and value.  I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap.  

This article is about people.  One person in particular - Sir Gordon Wu Ying Sheung - who founded and built Hopewell Holdings into one of the largest companies in Hong Kong.

Gordon Wu – The Man Who Turned the Lights On by Rosemary Sayer is a good telling of his and the Hopewell story from an insider’s perspective.  

This is likely a ‘pay for play’ book meaning that the subject likely sponsored its writing or publishing in some shape or form.  As such, it should be read more like an autobiography than an objective biography.  I say this as it seems to gloss over many of the subject’s shortcomings, and likely avoids many others. 

While many criticize these books for not being objective, I personally like them as they many times pair a good writer with interesting people who would not write it themselves or realize someone could do a better job.

Even more so, these books provide an insider’s view on what was happening at the time.  This perspective is helpful.  As an analyst I’m outside and don’t really know what the management is thinking when they make important decisions.  Books like these help to better understand how the management and controlling shareholders make decisions.

During the early 80s and mid 90s, Hopewell was a key holding of many foreign investors in HK and virtually every brokerage and I-bank research department covered it.  Hopewell and Gordon Wu had a big profile as they were consistently in the press.

What I particularly like about biographies like this one is its insight into the entrepreneurs’ early years.  Gordon grew up in an upper middle-class family in Hong Kong.  His father founded and owned one of Hong Kong’s largest taxi companies that was built from the ground up in the aftermath of World War II. The family was wealthy enough to send eight of their nine children to college in the United States, where several eventually settled. Three earned places at top US universities including Gordon who studied at Princeton.

Living and studying in America made a big impression on him. The book notes that he made good friends there, and enjoyed the feeling that in the US everybody was created equal. Hopewell is named after the town in New Jersey that first inspired him to get into construction, and his eldest son, Thomas Jefferson Wu, is named after the third president of the United States.

Gordon Wu made one of the largest single gifts to any university – US$100m to his alma mater in 1995. Several years ago he hosted and paid for his entire graduating class and their spouses to come and see what he built in Hong Kong and China.  .

He was one of five Asian students studying at Princeton in 1958.  The book notes that Gordon actively circulated and made friends with his fellow students and did such classic American things such as attending Christmas and Thanksgiving dinners at friends’ and roommates’ houses.

Unlike many in his family who studied medical science, Gordon studied engineering. Also unlike many in his family, Gordon returned to Hong Kong.

Early Setback

The biggest takeaway from this book for me is that like many other successful entrepreneurs, he faced an early setback.

Hopewell Construction, the predecessor of the now Hong Kong listed Hopewell Holdings, was founded in 1963 with funding from his parents. Gordon was 28 years old at the time. One of its first projects was the Central Building in Wan Chai (now better known as the building that houses the Tai Yau Shopping Plaza). 

The setback occurred in the aftermath of Hong Kong’s 1965 property crash and mini bank run.  During this time one of Hong Kong’s largest, the Heng Seng Bank, suffered a major run and was quickly bought by HSBC where it remains today. 

Gordon quickly realized the extent of his problems and locked himself in his office to figure out a solution. Property prices fell to a level that made his land bank and existing projects unprofitable. Selling existing properties would not cover the losses.  The brief details of this episode imply that Hopewell Construction would likely go bankrupt.  Realizing this he “…wrote up a four-page summary with graphs and charts that were typical of his engineering style and went to visit his bankers…” at HSBC.  The plan impressed the bank officers and he received a loan.  Despite this, his family was mad at him for going into debt.  According to the book, he worked around the clock to keep the business afloat and meet his repayments to the bank.  By 1967 the property market started to improve and Gordon eventually formed a new company – Hopewell Holdings – that better separated his and his family’s interests.   

Many children of successful entrepreneurs are not very successful, or never get to the same level as the founder (see related blog post here).  Among the rare few who go on to do well, many go through early setbacks or ‘tests’ that likely provide life-long lessons.  Two similar circumstances come to mind.

Djarum’s Hartono brothers faced potential ruin in 1961 when their cigarette factory was destroyed in a fire about the same time that their father, who was also the company's founder, passed away. The brothers responded to the setback by building the first modern cigarette factory in Indonesia, and revamped and modernized Djarum’s management and corporate structure.  They are now the richest people in Indonesia according to Forbes (see here).

Saratoga Capital’s Edwin Soeryadjaya seemed next in line to take over Astra International, only to have the family lose control of the group as it needed to sell its stake to cover older brother Edward’s Bank Summa debts.  Founded during the Asian Financial Crisis, Saratoga is now one of the largest private equity groups in Indonesia, and Edwin is ranked number 26 on the Forbes list (see here).

Early In China

The second most interesting story is how Gordon organized a meeting with the most well-known and the wealthiest property developers in Hong Kong to build China’s first luxury hotel.  Participants in the May 1979 lunch included heads and representatives from Cheung Kong, New World, and Sun Hung Kai.  This was to be their first property project in China.  They would later become some of the some of the largest privately-held business groups in the world’s largest country with most of their wealth coming from property development.  Gordon was the one who organized the lunch and the project, and spent much of the next five years making the hotel project happen. He had the tenacity, vision and execution skills to get it done.

I won’t go into details here as the book provides good insight into doing business in early 1980s’ China.  For instance one problem in getting the new hotel approved was that it alone would use 2% of the electricity generated in Guangzhou at the time.  Tales of government officials’ naivety about the outside world, training staff on how to apply make-up and use modern washers and driers make one realize how much China has changed in the last 30 years.  Working and travelling between Hong Kong and Guangzhou gave him his next idea.

The third most impressionable story was how Hopewell designed and built the 122km Shenzhen to Guangzhou super highway, the first privately-owned toll road in modern China.  China now has the world’s most extensive highway and expressway system and the second largest number of cars in the world (see here).  Gordon Wu was an important catalyst in kick-starting it all and like the hotel project, he had to jump over many hurdles to get it all done.

But there’s a lot more in this book that is also interesting and others may find more interesting: building some of the first privately-owned power stations in China and the Philippines; insight into the long-term relationship with William Purves who eventually led the HSBC group; and trying his best to build a mass rapid transport system in Bangkok that was ultimately stopped by Thaksin Shinawatra.  

An interesting chapter sheds light on how he and Hopewell dealt with and survived the 1997/98 Asian financial crisis.  Hopewell’s projects in Thailand and Indonesia were going nowhere; the projects were leveraged and there were questions on whether contracts would be honored.  Hopewell’s stock price fell 87% in the 12 months to August 1998, and fell a further 25% over the next two years hitting a low around HK$2.  The press was vicious in criticizing him and Hopewell.  The chapter’s title “From Hero to Scapegoat”, sums up Gordon Wu’s experience in this trying time.  The company and stock have done well since the crisis.  Its shares have had fairly steady upward climb reaching an all-time high of HK$35 in Feb 2013.  A 16x increase 16 years, not including dividends.

There are also tales of Gordon Wu negotiating with Jiang Zemin to fix the Hong Kong / Shenzhen border crossing, being knighted by Prince Charles from the UK, being the first to float the idea of a bridge and tunnel linking Hong Kong and Macau (1978), and the support and tenacity of his wife during the early years and when the going got tough.

Gordon Wu and Hopewell are still around.  He’s turning 80 this year and is now Hopewell’s Chairman.  His eldest son, Thomas Jefferson Wu is managing director and Gordon’s wife Lady Wu Ivy Sau Ping Kwok is a non-executive director.

My main criticism of the book is the same as other books I’ve reviewed on this blog.  There's no index.  Gordon Wu and Hopewell broke a lot of ground in China and Asia.  Historians – as well as lonely analysts like myself – would benefit from an index.  

Gordon Wu is not your rags to riches businessmen.  He came from a well-to-do family and made the most of his education and background.  He thought big and had the balls to carry out his dream.  Like most successful business people he overcame setbacks and criticisms.  I suspect, but have no way of knowing, that there are likely some ghosts in the cupboard that are not covered in this book.  As Ir. Ciputra once told me in a short interview many years ago, "In property and construction, you have to get your hands dirty”.   

This book serves as a good reminder of the pioneering spirit and how one person can make a very large impact.  Being from the US, I mostly take highways, and other infrastructure for granted, much as I suspect the 20-somethings and below in China do now.  We don’t notice it when it’s working well, but complain when it’s not available or broken. 

I doubt many can think of the people or corporation that made it all happen.  Gordon Wu’s successful projects in China and Asia broke new ground and not only benefited the people who use Hopewell’s infrastructure, but by showing it could be done, he inspired many to copy him.

Here’s to the pioneers.

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