Trouble in the Hongs

Hong Kong's traditions of complete laissez-faire and growth without ruinous inflation have given it a reputation as one of the world's most lucrative--and safest--havens for investment. Now that reputation is being tarnished: for the first time in memory, one of the colony's fabled hongs (trading companies) is struggling to avert financial collapse. The endangered hong is Hutchison International, Ltd., a conglomerate with a labyrinthine network of more than 350 subsidiaries and affiliates, including diamond merchants, earth movers, fashion boutiques and a mailorder business that deals in food, fowl and live animals.

Hutchison was built in taipan (big boss) style by Sir Douglas Clague, a 59-year-old Rhodesia-born Englishman. Under his aegis the company boosted profits from $3 million in 1969 to $27 million in 1973, mainly by buying up other companies at a headlong pace. To pay for them, it floated no fewer than ten stock issues in three years, ballooning the number of shares outstanding from 13 million in 1971 to 269 million in May of this year. Between mid-1973 and last December, however, a crash on the Hong Kong Stock Exchange and declining confidence in Hutchison wiped out nearly 90% of the value of those shares. Clague was unable to continue tapping the stock market for capital.

Hutchison's woes were further aggravated by the recession--a slump in exports depressed its revenues--and by its inability to manage its subsidiaries. The firm's principal lender, the Hong Kong and Shanghai Banking Corp., began to apply gentlemanly persuasion to straighten Hutchison out. In August the bank agreed to pump $30 million into the company in return for 150 million newly created shares of its stock--on condition that Clague give way to a bank-picked successor. That ultimatum prompted Clague to make a last-ditch effort to raise capital from European banks. He failed.

Defeated, Clague last month moved out of his plush offices at the 24-story Hutchison House on Hong Kong's waterfront. His bank-picked successor is Conglomerate Rescue Artist William Wyllie; a four-man caretaker team, in consultation with Wyllie, has moved to sell off some of Hutchison's holdings. To raise $5 million, they peddled an 18% interest in a British investment firm. Company insiders expect that a commercial helicopter subsidiary may be sold off or folded, while management control of a merchant banking affiliate will be divested. Hutchison has also been selling off shares of other companies from its investment portfolio at a feverish pace, so confusing its books that accountants cannot even produce a sales estimate for 1974. Wyllie, a 43-year-old Australia-born millionaire with a reputation as a cost cutter, will not formally take over Hutchison's management until Nov. 1. But he has already seen enough to conclude that "there probably aren't 50 subsidiaries that are worth a damn."

Hutchison's designated savior rejects any suggestion that the root cause of the company's trouble is Hong Kong's freewheeling atmosphere. Says Wyllie: "Hong Kong is still a place where you can make money freely and legitimately and, what's more, you can keep it." As for Hutchison, he adds: "Once we have stopped to take a breath, then the growth can start again"--presumably from a drastically shrunken base.

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