Hopewell Holding Limited Case Solution

2. Even if the project was ultimately successful, did the near-debacle with BERTS indicate that large BOT projects in developing countries were simply too risky for firms like HHL?

Though, (Build-Operate-Transfer) BOT projects are a feasible way for developing countries to develop their infrastructure, but for companies like Hopewell Holding Limited, they are certainly risky. As apparent from the Bangkok Elevated Road and Train system, a foreign company taking up a BOT project in a developing country is taking up huge risks. For example, political instability, as was the case with the Thai Government, HHL witnessed a change of four governments during its initial construction period of seven years only. In addition to this, HHL also faced difficulties in financing its project. Even by January 1997, it was in talk with various international commercial banks and European groups for the provision of loan for the remaining project. Moreover, economic crisis in the Asian countries resulted in considerable depreciation of the local currency because of which the pre-decided concession period of 30 years was not enough to collect adequate revenues so that the project ends up being profitable for the company. Furthermore, poor support for the Thai Ministry of Transport and Communication resulted in slow purchase of land for the HHL, which caused an increase in construction period. Last but not the least, other factors like poor work ethics of local labours, corruption, nepotism, and government interference also play a major role in increasing the risk of BOT projects in developing countries.

3. It appears that Sir Gordon Wu intends to continue HHL’s infrastructure development business. Is this the right decision for HHL’s shareholders? 

Pursuing the infrastructure development business certainly doesn’t seem right for the shareholders, based on their current perception of the company. But giving a closer look on the balance sheet of Hopewell Holding Limited, it is evident that the main issue of the company is a shortage of funds and cash crunch because of which many of its projects in China, Indonesia, India and the Philippines were in danger. The company could resolve this issue by selling stakes of some of its projects to overcome this shortage of funds. Possible options of projects for selling stakes include Guangzhou-Shenzhen-Zhuhai Superhighway, whose’ first phase is operational, and remaining is under construction at the moment. HHL sold 2.5 percent interest in toll operation of GSZ Superhighway in 1995 to raise much required funds then. The same step could be considered by the top management, to pull out the company from this crisis. Another option is to sell some or complete stakes of CEPA (Consolidated Electric Power Asia), power plant development wing of HHL, which was performing well since its listing in 1993 and was also the most profitable business of the company. HHL could consider selling CEPA’s stakes to raise funds. This step would allow the company to overcome its financial crunch and not only would it resolve the apprehensions of the shareholders but also it would improve the balance sheet which was recently hit hard by the halt of the BERT project.

4. Can HHL take steps to minimize the risks associated with future infrastructure development projects? Alternately, would an entirely new corporate strategy — perhaps one that concentrates on its property development business — be better for shareholders?

HHL can take a couple of steps to minimize or avoid the risks associated with infrastructure development projects which include, not taking projects on BOT structure in developing countries and/or carrying out a proper study of risks attached to the project and take steps to mitigate them. Alternatively, HHL can also plan a new corporate strategy where it would allow its shareholders who are not ready to bear the risk of infrastructure development, to still invest in the company without taking the risk. HHL can consider dividing its operations into two different subsidiaries like infrastructure development and property development. All the current and complete projects will belong to its respective subsidiary so that their financial performance is linked to that particular subsidiary only and not the entire company.