Victor Victorious?

If Victor Li closes on Air Canada, he can emerge from the shadow cast by his legendary father, Li Ka-shing. Then the heir apparenet can show whether he's a builder or a trader By Joanne Lee-Young
00:00 EST Monday, December 29, 2003   

In a rare glimpse of his private life, Victor Li is spinning a lazy Susan topped with a few simple Chinese dishes, eating dinner with his family at home in Hong Kong.

There at the table is his father, the legendary Li Ka-shing, who heads an empire that includes operations in ports, telecom, real estate, hotels, retailing, energy and infrastructure in 40 countries. His tale is one of humble roots and a keen feel for timing, trading and the vicissitudes of geopolitics. "Superman," as he's called in Hong Kong, is the focus in this footage from a 1998 documentary. He is the patriarch who values old-school courtesies and is in no hurry to let go.

Across from Victor is his younger brother, Richard, a brash, attention-seeking entrepreneur whose every move-business follies, dating escapades-is feverishly tracked by the paparazzi. He's the rebel-or as much of a rebel as you can be in a family of billionaires.

Then there is Victor Li himself, ruefully telling his father and brother an anecdote about his young daughters' antics. Now 39, he has degrees in civil and structural engineering from Stanford University. He is the studious apprentice, a steady and loyal disciple to his father. He is prudent and shuns publicity.

So where does the father end and the son begin? The Victor Li enigma has long been a subject of fascination in Asia, and in the fall of 2003, as the battle for control of Air Canada raged, Canadians too had cause to be curious: Li was the distant figure who promised a (somewhat) Canadian solution to the red-ink airline's quandary.

It's been an impassioned fight, not least because flagship airlines carry patriotic baggage. In November, Air Canada chose an offer from Li's privately held Trinity Time Investments Ltd. over one from Cerberus Capital Management LP, a New York-based hedge fund. Li would get a controlling 31% equity stake for $650 million. Li's Canadian citizenship, crucial for clearing foreign ownership hurdles, helped clinch the deal. His past track record in Canada also helped, as did his family's impressive success elsewhere. Cerberus, however, fought back with an unsolicited improved offer, pitting some creditors, who like the sweetened bid, against stakeholders who considered a deal a deal.

From the start, Li has been keen to emphasize his Canadian loyalties. "He reckons that Air Canada has a lot of potential and also, being a Canadian himself, he would like to keep it in Canadian hands," spokesperson Wendy Tong Barnes told the Canadian Press. She proceeded to lay on Li's Canuck bona fides: He has been a Canadian citizen for about 20 years. He makes regular trips to Canada. His wife, Cynthia, is Canadian. So are his three kids. "We're pro-Canada. He met his wife in Canada so [there are] definitely strong ties."

An affinity from teenage vacations spent paddling at Lake Louise notwithstanding, the best guide to Victor Li's intentions for Air Canada is the family's past business dealings in Canada. When the Li family first headed overseas looking to invest, it chose Calgary-based Husky Oil (now Husky Energy). In 1987, the family bought 52% of the firm, a take since increased to 71.5%. After years of slogging, losses to the tune of $932 million and several acquisitions, Husky, where Victor Li is a co-chairman, is now profitable.

Early on at Husky, the Lis honed what would be a key strategy for managing overseas ventures: picking carefully selected lieutenants who would do the work but report back to home base. To Husky, the Lis sent John Lau, a Hong Kong-born accountant who had already worked for them for more than a decade, proving himself adept at turning around distressed firms. In Calgary, Lau became the Lis' eyes and ears on the ground. Since taking over as Husky's CEO in 1993, he has been credited with the company's turnaround, but also criticized for imposing a hierarchical and rigid management style.

"From the Husky experience, we learned that management has to be perfect. The management was really a bit slack at the beginning," Li Ka-shing has said. "Two of the people I've placed here [at Husky] worked with me for more than 20 years, the other more than 10 years. The people originally working here will gradually become our own people. Important issues have to be approved by Hong Kong. We rely on a system, checks and balances, and regular meetings."

This is still how it works-not just in day-to-day operations but also in the scouting of opportunities and forging of connections. If Air Canada is a case where the Lis weren't set on installing their own CEO, the deal was still typical in giving them solid control for their minority investment.

The trusted coterie tapped by the Lis in Canada has included Stanley and Eva Kwok and Frank Sixt. The Kwoks helped to steer Victor Li when he worked in Vancouver, developing the Expo 86 lands for residential properties under the aegis of his company Concord Pacific. As a respected and well-connected Chinese-Canadian architect in Vancouver (that he was president of B.C. Place before working for Concord was too close for comfort, in critics' view), Kwok was key to Li winning local acceptance for the project. Eva Kwok, who runs a private investment firm, is credited with broaching the Air Canada opportunity with Li. She runs a private investment firm and serves on the board of Husky, having resigned her seat on Air Canada's board when Li made his bid.

Frank Sixt was Li's chief adviser on Air Canada. As group finance director at the Li conglomerate Hutchison Whampoa, he is one of two top advisers at Li Ka-shing's side. He is intimately involved with strategy for both the family's private and public companies, not only in Canada, but around the world. Based mostly in Hong Kong, Sixt was recruited by the Lis from law firm Stikeman Elliot's Hong Kong office in the early 1990s. Known as a tax mastermind, Sixt is a former high school, law school and Stikeman colleague of Air Canada's chief restructuring officer, Calin Rovinescu.

Masters of long-term relationships, the Lis are also intimate with CIBC, of which Li Ka-shing is reported to be the largest individual shareholder. The relationship goes back to the 1970s, when CIBC underwrote some of Li Ka-shing's first big projects. CIBC and Li Ka-shing later formed a joint venture merchant bank, Canadian Eastern Finance, concentrating on property development in Hong Kong. In 1986, the same team formed CEF Holdings, which offered various debt and equity financings. Over the years, the Lis have tapped CIBC executives to be involved in their businesses. Holger Kluge, one of the bank's top executives, spent six years in Hong Kong, becoming a good friend of the Li family; he sits on Husky's board. When Li Ka-shing first took over Hutchison Whampoa, he named a former CIBC executive, William Shurniak, as his finance chief. Donald Fullerton, once CEO of CIBC, sat on the board of Orange, the successful U.K. mobile-phone operator that was started from scratch by the Lis and British Aerospace.

Another nexus for the Lis' relationships in Canada is Robert Fung, a Toronto financier who was Richard Li's mentor at the aggressive Toronto merchant bank Gordon Capital in the late 1980s. During Richard's two-year apprenticeship, Fung exposed him to the investment business and fishing trips in Northern Canada. He was no ordinary apprentice, of course: Richard, remembered on the Street principally as a playboy, later returned as Gordon's largest shareholder. The Lis sold the faltering investment banker to HSBC in 1998, which shut it down in 2002.

The Gordon flop aside, Fung's famed "gold-plated Rolodex" connected the Lis to names like Paul Martin and Jean Chrétien. Fung and Martin were roommates at the University of Toronto; Martin is godfather to one of Fung's sons. When Chrétien bowed out of politics in 1986, Fung ushered him into an advisory position at Gordon Capital. Chrétien later returned the favour by taking one of Fung's sons to Ottawa as a junior staffer.

But even the best connections mean little without the right timing. A knack for geopolitical foresight has been key to the Lis' manoeuvrings. More than a decade before Hong Kong was returned to Chinese sovereignty from British rule in 1997, Li Ka-shing hedged against the transition going sour by expanding his businesses outside of Hong Kong and making his sons Canadian. But he was also at the forefront of Hong Kong tycoons charging back to China. Of the Hong Kong elite, he remains one of the largest investors and charitable donors in mainland China, giving him the ear of Beijing's top leaders.

Of course, politics is fluid and given to surprises. Lately, Victor Li was held up as the Canadian solution to a problem, but in his debut in this country he didn't seem Canadian enough. Between the late 1980s and early 1990s, Li worked in Vancouver, developing the Expo 86 site. Like the planned Air Canada investment, the Li vehicle in this case was a private company, Concord Pacific, financed mainly by Li family money. The site was recently described as one of the "prettiest pieces of big-city waterfront in the world." At the time, however, the development was a lightning rod for the resentment of Vancouverites feeling ill at ease about the city's sudden influx of Asian money.

First, in 1988, when Li Ka-shing caught the rest of the world snoozing and bought the land for $320 million, the B.C. government was attacked for selling it for a song. Then, when he started preselling condos on the site simultaneously around the world, Asian buyers exploited the time difference and snapped up every last unit before the Vancouver sales office even woke up. Canadian residents felt second-class. In the end, would-be Canadian buyers were given two weeks of exclusive access before more condos were marketed in Hong Kong, but Victor Li still was forced to step out publicly to assuage feelings: "I am not your average developer," he said. "I made my biggest investment about six years ago when I became a Canadian and a British Columbian. I came 10,000 miles to make friends, not enemies, not controversies."

n 1989, when he was living in Canada, Victor Li said, "You have to understand a Chinese family. There is no difference between my father's personal investments versus my personal investments. It's one. It is called family investment and that's it. The only separation is between family and public companies."

Even on the home front, it's one: Li shares a house with his father, in keeping with Chinese custom. Li's wife, Cynthia Wong, and their three daughters live on one floor, his father on another. The two men go to work in the same building, Cheung Kong Center in Hong Kong's Central district. Li attends to day-to-day operations on the ninth floor, while his father steers from the lofty 70th floor.

Despite the best efforts of Hong Kong's tycoon-crazy tabloid press, very little is known about Victor Li's private life. (The Li companies are so close-mouthed that, to give one example, they would not confirm or deny that Cynthia Wong is from Vancouver.) The couple rarely appears on the social circuit. Cynthia is a regular at the Catholic cathedral. She and Li got married there in 1993, but instead of following the ceremony with a splashy reception to flaunt their wealth-de rigueur in Hong Kong-they opted for a simple affair ("a mere 20 tables at the Hilton," reported Ming Pao newspaper) and donated more than half a million dollars to the church.

The secrecy owes something to the day in 1996 that Victor Li was kidnapped at gunpoint from his limousine on the way to work. To secure his return, Li Ka-shing reportedly paid $134 million (U.S.), a ransom so large that it took the kidnap gang two days to collect it. Before being executed, the lead kidnapper was asked why he chose to snatch Li instead of Li Ka-shing himself. He replied, "Because the father writes a bigger cheque." Li has never spoken in public about the kidnapping.

The roots of the family wealth date to 1950, when Li Ka-shing started Cheung Kong, a manufacturer of plastic flowers. As the tumult of the Cultural Revolution loomed over Hong Kong, Li Ka-shing counterintuitively moved some money into property. Later, when the market soared, so did Cheung Kong, listing on the Hong Kong Stock Exchange in 1972. Then, in 1979, Li Ka-shing took over Hutchison Whampoa, a British trading house that had long been a symbol of colonial rule. The first Chinese person to own such a venerable company, Li Ka-shing built the business dramatically, striking gold through timely investments in everything from ports to retailing to telecommunications. His Midas touch is the stuff of folklore in a town where an obsession for making money basically hauled the place out of the sea in the first place.

Unlike his brother, Victor Li has stayed close to the family fold, focusing mostly on the nitty-gritty of the Hong Kong and mainland China property business at Cheung Kong. (Cheung Kong holds 49.9% of Hutchison Whampoa.) In 1999, Li became managing director, assuming more responsibility for everyday operations. "Real estate, asset plays, infrastructure. This is where he has traditionally been comfortable," says Timothy Dattels, a Canadian who was a close adviser to the Li family during his years as head of investment banking in Asia for Goldman, Sachs & Co. In this light, the Air Canada bid was seen as Victor emerging in his own right.

Buzz over the issue of succession comes and goes. Most observers see Victor Li as the natural heir. After all, it is the Chinese tradition for the older son to take over the reins, while the younger one goes off to do his own thing. In the early 1990s, it was a harder call to make. The Li companies were at a crossroads; there was a changing of the guard among Li Ka-shing's deputies; and the two sons had roughly equal roles. Richard Li was deputy chairman at Hutchison and trying, with its backing, to hoist up his company, Star TV. The succession debate was hot.

Now, there is more stability in the upper echelons and Richard Li has stepped out with a completely separate venture, Pacific Century CyberWorks (PCCW), a telecom company that, in some areas, even competes with Hutchison. In March, 2001, he admitted that his company had for years described him as a Stanford graduate even though he never completed his computer engineering degree, leaving Palo Alto for Toronto to work at Gordon Capital six months before graduation. The gaffe capped widespread and mounting discontent over PCCW's depressed stock price. There was a period "where no one dreamed of writing anything that wasn't flattering about anyone in the Li family," says a former manager for the Lis who declined to be named. "But with the Stanford admission, Richard became fair game. The turnaround was astonishing. He had embarrassed the family and become a laughingstock."

Other things have shifted. The focus of the two companies is now less on asset trading, reducing the emphasis on the judgment of Li Ka-shing himself. These days, "there are more assets whose business rationale is different," says a Hong Kong analyst who covered the Li companies for almost a decade. "The nature of property development [was] that you add value by skill in trading. The businesses that now dominate the group are not so predominantly dependent on trading. They still trade franchises, but the underlying rationale is not so based on the sole skill or knack of trading."

Another reason that talk of succession fades in and out is that, even at 75 years old, Li Ka-shing shows little sign of slowing down. Victor Li "can talk at length. He sits on various committees. He is up to date with the numbers, the policy issues in Hong Kong, in particular, with construction and property," says Peter Churchouse, advisory director at Morgan Stanley in Hong Kong and an analyst who has long followed Li. But "when it comes to the more macro issues of major strategy and the thrust of the business, a lot of that is still the father."

Victor Li, who declined to be interviewed for this article, sees himself as a careful student of his father and has said that "we are very similar in business strategy, thinking and lifestyle, except that I don't play golf."

That may be, but at Hong Kong negotiating tables, he is not known as a carbon copy of his father. "He is very opinionated and forceful with his expression," says a person who has been at many meetings with Victor Li. "He likes to hold the floor a bit and some people resent this, but he is usually talking with knowledge as opposed to just pontificating. A lot of these businessmen fall into two types. The first type are quite happy to leave crumbs on the table because they see that there may be an opportunity in the future to do business again. This is more old school. The second type are the younger guys like Victor and Richard who are more out to screw [the other party out of] every penny to demonstrate their prowess and skill. They have a reputation in this regard. In the old days, [Li Ka-shing] looked more to the future" if it meant bailing someone out in the present.

If the past has been about industrials, property and infrastructure, the current focus at Cheung Kong and Hutchison is telecommunications. The Lis are being watched around the world for their gamble on third-generation ("3G") mobile network technology. The rest of the wireless industry may be going slow on 3G in the aftermath of the telecom bubble, but Hutchison is pressing ahead, constructing and marketing networks in Australia, Hong Kong, Israel and much of Europe.

Even though there is skepticism-much bemoaning of the technical glitches that have plagued the launch of 3G services-many observers hedge their criticism of the Lis' telecom projects. After all, in the early 1990s, Hutchison created Orange with an initial investment of about $1.16 billion (U.S.). When the Lis sold it in 1999, it was valued at $33 billion (U.S.). Similarly, when VoiceStream was sold in 2000, Hutchison took away 10 times what it had put into the company over the three previous years.

So here's the perennial question with the Lis: Are they business builders or traders? Or, as the analyst who covered the Li companies for almost a decade puts it, "Are they just clever financial engineers? Or are they operators of businesses with proprietary knowledge or skills?"

The answer is that they are all of these at different times. They have built businesses from nothing; they have mended others over long periods of time; they have flipped some quickly for huge profits.

As Cheung Kong and Hutchison have expanded around the world, they have not always been met with open arms, particularly in the U.S. In 1999, when Hutchison bid successfully for the right to run container ports at the entrance of the Panama Canal, Trent Lott, then the Republican Senate majority leader, fulminated against the deal, which he said amounted to giving control of the canal to the People's Liberation Army. In May of this year, Hutchison dropped out of a joint bid to take over Global Crossing, the bankrupt U.S. fibre-optic cable operator, amid similar hysterics about U.S. national security.

No one denies that the Lis work at having good relations with leaders in mainland China, but most observers outside the U.S. see the smoothing of such political ties as good business sense, a strategy that has worked well for the Lis (and countless other businesspeople) in lots of other markets. Like many Hong Kong tycoons, the Lis are strictly apolitical. If a business goal requires some tea-sipping with Communists, so be it.

Compared with the U.S., Canada has been a friendly market for the Lis. That said, there was much speculation and some bafflement about how Air Canada would fit into the Lis' strategy. Hutchison runs an airline maintenance business with China Southern Airlines called Gameco, but it is so tiny that most analysts do not even account for it. The Li companies also own some hotels, but here again the bid seemed to be less about possible synergies and more about expanding into a tough business where no one has done well. "They don't know about airlines, but then they didn't know about oil, nor telecom. This is how it is done. They are a conglomerate, so let's have one of those," says Churchouse at Morgan Stanley. "Over all, they have been quite good at buying assets at a reasonably good price and managing them profitably, delivering good shareholder return in the long run."

Price aside, an effort to save the national airline is a favour of sorts, something that might make politicians in Ottawa feel good about the family's activities in Canada. It's the kind of IOU that is not hedged against any single contingency in particular, but one that simply could come in handy in one of the favourite jurisdictions of a family that straddles the globe.

With a report from Jodie Warren in Vancouver