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Hopewell Holdings Limited Case Solution

Solution Id Length Case Author Case Publisher
768 1011 Words (4 Pages) Rudy Low, John Luk, Geoffrey Lieu, Richard L. Priem Harvard Business School : PP7196
This solution includes: A Word File A Word File

Hopewell Holding Limited (HHL) is a Hong Kong based public limited company known for making investments in property development, power generation plants, infrastructure development etc. in Asia Pacific Region. It was established on October 17, 1972 by Sir Gordon Wu, a Princeton-educated engineer. It’s headquarter is located in Wanchai, Hong Kong.

Following questions are answered in this case study solution:

  1. Introduction

  2. Key Issue Identification

  3. Strategic Alternative One

  4. Strategic Alternative Two

  5. Strategic Alternative Three

  6. Action Plan

  7. Conclusion

Hopewell Holdings Limited Case Analysis

2. Key Issue Identification

Since HHL faced a serious loss of HK$5.3 billion in BERT project because of Thailand’s political instability, economic crisis and unsuccessful negotiation over fare structure, its cash flow system was completely disturbed, and the company was in heavy debt. Shareholders were not satisfied with the company’s performance, which was apparent in the dipping share prices. From HK$5.5 in July’ 96 to HK$3 in October’96. HHL was in urgent need of decreasing its debts and increasing its cash inflows otherwise it could face a cash crunch which would certainly endanger its projects all over Asia Pacific Region.

3. Strategic Alternative One

HHL could consider raising funds by selling some stakes in Guangzhou-Shenzhen-Zhuhai Superhighway as it did in 1995 by selling 2.5 percent interest in its toll operations. GSZ Superhighway had earned HK$2 billion in three years, and it was not fully operational as yet. If HHL decides to sell further stakes of GSZ Highway, it would forgo the potential future income from this project which could be considerable. This might turn out to be naïve decision in the long term, but the current situation of HHL doesn’t leave much choice for its directors.

4. Strategic Alternative Two

Consolidated Electric Power Asia (CEPA) has been performing well since its listing in 1993. It is one of Asia’s largest independent power producers with projects in China, The Philippines, Indonesia, and Pakistan. It is HHL’s 60.3% owned subsidiary and also the best business wing in terms of profitability. HHL could consider selling CEPA’s complete or partial stake to a local or foreign company and generate much required funds. Since, CEPA projects had shown tremendous success over the years, it could easily find a buyer with a good offer, but the downside would be that HHL would lose its best business wing.

5. Strategic Alternative Three

HHL could also consider making some strategic management and structural changes in its business. It could further divide its business in two subsidiaries infrastructure and property as it did with its power generation plants project. After making two subsidiaries, HHL could consider doing an IPO for its infrastructure subsidiary and could generate funds for the projects going on across Asia. This step would also allow the company to safeguard its reputation as property development giant in case another infrastructure project gets failed. Moreover, this would allow the company to generate funds without having to sell stakes in some of its other infrastructure, property or power generation projects. One major downside of this could be that there might not be enough subscriptions during the IPO as infrastructure wing has always been considered the most risky business of HHL, plus the recent failure of BERT project in Thailand would also be hovering in the minds of the shareholders.

6. Action Plan

The best alternative strategy for Hopewell Holding Company, considering its urgent need of raising funds so that its infrastructure projects in China, Indonesia and Hong Kong are not endangered, would be to sell off its stakes in (CEPA), its power generation plants development subsidiary. HHL could sell its partial or complete stake to a company offering the best value. Though, CEPA was the best performing business wing of HHL, but in the present situation, this seems to be the best strategy of raising funds. Because of its huge success, CEPA could fetch a good enough deal for HHL to reduce its current debt and overcome the crisis.

This seems to be a better option than selling of further stakes in GSZ Superhighway as it is in construction at the moment, and based on its current income; it has the potential of earning huge revenues for HHL as GSZ Superhighway is expected to be a key link of China’s fast growing economy. Furthermore, the option of bringing in some high level changes, in HHL, at the moment, might not be a good idea as the company is already going through a financial mess, and doing an IPO for its newly separated infrastructure subsidiary would carry high risks of under subscription because of its risky market image.

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