Transcript of the Interview with Francis Leung (梁伯韬) China Boom Project, Asia Society 2009 Leung, Francis (梁伯韬) Senior Advisor, CVC Capital Partners Industry: Francis Leung Business has worked as an investment banker in Hong Kong for nearly thirty years. He led the effort to get some of the first Chinese companies listed on the Hong Kong stock market, and helped manage the first initial public offering (IPO) of a Chinese company on the Hong Kong stock market. He has been dubbed 'father of red chips' for leading the effort to get the first Chinese companies listed on the Hong Kong stock market, and managing the first initial public offering (IPO) of a Chinese company on the Hong Kong stock market. He has worked closely with Hong Kong tycoon Li Ka-­‐shing, was Asia Chairman for Citigroup Global Markets and is a Senior Adviser to CVC Capital Partners. Transcript -­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐-­‐ 梁伯韬 Interviewee: Francis Leung ( ) Interviewer: John Delury Videographer: Josh Chin Date: March 19, 2009 Place: Hong Kong QUESTION What we’re doing here is creating an archive so 100 years from now historians can listen to how people thought about China in the last 30 years. One of the first things historians are going to want to know is about you – you’re a very well known figure in Hong Kong and the financial world globally but you may have to remind them 100 years from now what you’ve been doing. So if you could give us your life story focusing on how it’s related to the China boom… 1 0:1:27 FL Right, right. Well, I have been involved in investment banking in my past career, until recently. I left investment banking before the financial crisis…so I left investment banking two and a half years ago. But before that I was involved in corporate finance mainly to help companies to raise capital from the stock market and I also advised on mergers and acquisitions as well. Um, so in the past that was my job, and nothing else. However, I left investment banking two and a half years ago and now I’m on the byside making investments on my own, and I’m also advising private equity funds, okay. For example, now I’m sitting in the office of CVC. CVC is a very large biofund [Dan: I think that’s what he said. It wasn’t totally ] clear. based in Europe. It is also one of the largest pools of funds in Asia as well. 0:2:49 So, um, my involvement with China was probably about twenty years ago, that’s the beginning, okay. Originally when I joined investment banking, it was mainly a local business. I was serving local corporations, local clients. But when China started to open up, okay, its doors, it started the economic reforms, I follow my clients and go into China. 0:3:33 That was in the late In 80s, okay. the late 80s, many Hong Kong companies started to move into China to take advantage of the cheap labor and the abundance of land supply there. 0:3:49 Umm..that’s my first experience in China. Actually, that was a transformation of Hong Kong manufacturing sector. Most of the manufacturers since then have moved to China now. Hong Kong manufacturers now employs millions of people the Pearl River Delta and further north as well. So, that was my beginning involvement in China activities. 0:4:33 But at that time, my clients are still mainly Hong Kong companies. These Hong Kong companies have moved their base, their manufacturing base into China. 0:4:46 And then at that time we started sort of the China concept. That was the earliest China concept. I mean, companies because of the move into China, they increase their profit margins and um, they have become more competitive. So that is an attractive story to investors. That was the first, the earliest China concept. By moving operations, um, into China. 0:5:29. But then, uh, in the early 90s, okay, we have seen the beginning of the economic reforms in China, and that actually has attract more investors interest to China. Um, and also in the early 90s, okay, China started its local stock exchanges. One is in Shenzhen, the other one is based in Shanghai. So, investors started to invest in Chinese companies. And I was the, well, um, one of the first ones who were instrumentals in bringing Chinese companies to international investors, okay. I remember that in the early days, in the late 80s, in the early 90s, when the um, China stock market was not opened to international investors, we had to bring Chinese companies to the Hong Kong market, okay. 2 0:6:55 Originally, um, originally, um, we focused on those Chinese companies which have operations in Hong ong, K which have businesses in Hong Kong. Like Citic, the Citic group, okay, um, like China Resources, um, and uh, Guangdong Investment and so on. These are Chinese companies but they have operations in Hong Kong. So that was my first move, because they have already established in Hong Kong, and their entities are Hong Kong incorporated entities. So it was easier, technically, to help these companies to go to the public market. That was my first move. And these companies are called red chips now. These are companies incorporated outside of China but owned, really, by the Chinese government or related to the Chinese government. So that was the first kind of listing Chinese companies in Hong Kong. 0:8:21 QUESTION Let me ask a quick question about that, and then let you continue. FL Sure. Yeah. 0:8:23 QUESTION Back then, how risky was this, the perception of what you and others were doing? Were there people who thought this was crazy or was it something where pretty quickly you were easily able to attract a lot of investors and capital they were glad someone was doing it? 0:8:42 FL Yeah, yeah, let me back track a little bit. In fact, before I brought the first Chinese companies to the Hong Kong stock market, you know, I had been doing a lot of educational work, okay. I had to educate the Chinese companies, okay, first of all, as to what a stock market is about. You know what is, you know, uh, you know, a you know, a public listing, okay, involved. What was an IPO? Actually, I conducted many, you know, group studies, and make some speeches, okay, to some Chinese companies. They were very interested. They put together a group of people including research analysts and so on to study about capitalism. That was actually in the mid-­‐80s, you know. So I had been doing that kind of work for sort of four or five years. 0:9:40 In fact, I tried to bring a Chinese company to the stock market in the late 80s, but because of the world wide market crash in October ’87, so the Chinese, uh, these Chinese companies were scared, I mean, they thought it was, you know, quite risky, the stock market was quite risky. Not the investors, but the Chinese companies themselves. 0:10:14 For investors, they were seeking for opportunities, investment opportunities, and also diversification as well. So they were quite willing to invest in Chinese companies, okay. Umm, well, and then, 3 after October ’87, we had the Tiananmen Square event in June 4th, 1989, right, so my work has been interrupted by, uh, the market crash and also the Tiananmen Square event, right. 0:11:00. Really, the breakthrough was in 1992, okay, there was a big breakthrough when, in 1992, when, uh, uh, the, uh, the leader, Deng Xiaoping, visited Shenzhen and make a speech in Shenzhen and wanted, you know, China to advance the reforms. So, suddenly, then, um, Chinese companies wanted to move quickly and also investors really wanted to get into China. 0:11:40 Because, after the Tiananmen Square in 1989, okay, people was not sure about the political situation there, was not sure about uh, the continuation of the economic reforms, okay. Um, but…the um, the speech made by Deng Xiaoping in Shenzhen in 1992 really, have removed a lot of concerns and uncertainties. 0:12:18. Although before that, I have already, okay, helped two Chinese companies to seek listing, by backdoor listing, not by IPO, but by backdoor listing. The first one was Citic Pacific. Citic Pacific actually came to Hong Kong in the mid-­‐80s. As you may know, Citic is a group set up by the State Council in the 80s, to try experience capitalism, and use Citic to assess the international capital markets. In fact, Citic did the first international bonds. Of all the Chinese companies, you know, it was the first one who assess the international market. So Citic came to Hong Kong earlier, and also with the specific mission to assess the international markets and channel capital into China. 0:13:30. So, Citic was the first one I helped to seek a listing on the Hong Kong stock exchange. Citic obtained its listing in rly 1990, in ea 1990. As I mentioned earlier, it was a backdoor listing because, you know, they were not really that ready at the moment, so they wanted to get a listing by backdoor listing and gradually inject their assets into the lister vehicle. So it was still a learning exercise for Citic. 0:14:11.