Forum Archive Index - December 2000

[Chris Tse <christse@internet.co.nz>]

G'day Hugh

In reply to your comments :

1. Surely the way to reward shareholders is to focus on your vision and put 
all your utmost efforts into achieving that vision. After all, that is 
presumably why your shareholders bought into the company in the first 
place. The moment you start compromising your business objectives in an 
attempt to appease shareholders, then you lose focus, take your eye off the 
ball and you find yourself on your way down the slippery slope. Isn't this 
what happened to BIL when they attempted to "engineer" annual dividends 
year after year to appease their dividend hungry shareholders?

2. Having said that, it must be frustrating for a CEO to see the stock 
price trading at such low levels, particularly for a VC company where a 
strong stock price is required for capital raisings, stock currency deals, 
etc. As I understand, at current prices, ITC is trading around 20% below 
NTA, and that is conservatively calculating the carrying value of their 
investments at cost. But what can you do about it if the main reason for 
the weak stock price is weak investor sentiment towards the tech sector or 
the state of the equity markets in general, other than focus on your 
business plan and let the stock price take care of itself?

3. Yes, I admit that the size of ITC is a concern. In a weak market, 
capital raisings are probably not the way to go. Partnerships and alliances 
are a good idea and I see ITC has already moved in this area with the 
Singapore deal. Increasing capital under management is also a good idea, 
and this is what they are attempting to do with the China deal.
With regards to expanding outside NZ, they are also already doing this, by 
targeting new investments in Australia and China which they can feed into 
their worldwide network of VC expertise and capital. One part of their 
pan-Asian strategy that I definitely like is the widening of their contacts 
in the major Asian capital markets, as this increases their options for 
IPOs (still, I feel, the nirvana for VC companies). Just because the NZ or 
Australian markets happen to be non receptive of tech IPOs at any one time, 
doesn't mean the Singapore or Hong Kong markets are too.

4. Aaahhh China! Enjoyed reading your comments, and you are quite right, 
the list of crash and burn victims who dared to "enter the dragon" is long, 
distinguished, and still growing. But let's try and read behind the 
headlines and examine the fine print for a moment.
Firstly, there are some success stories as well as the horror stories. Take 
Affco, for example, whose foray into China has been a positive experience 
so far. I have my own theories about doing business in China but I won't 
bore you with them on this forum.
Secondly, despite my reservations about them not being "on the ground" in 
China, ITC are actually taking a prudent approach to their China deal. They 
seem to have picked a good local partner, according to their own 
assessment, which is half the battle when it comes to succeeding in the 
Chinese market. They are also wary of risking their own capital in the 
venture - remember that ITC is controlling the fund, but their portion of 
the capital comes from an "ITC-led consortium of investors". So it's not 
all their own dough, but they have control, and they are clipping the 
ticket along the way in terms of management fees, so it's a nice position 
to be in.

5. So, overall, I am quite happy with the direction that ITC is taking and 
am comfortable holding the stock. In fact, at today's prices, I would 
definitely be thinking about topping up...

Chris

At 21:20 18/12/00, you wrote:
>Chris, I agree with a fair bit of what you say. I'm not asking that ITC
>suddenly
>turn itself into an income stock, my postings are intended to indicate that
>there
>are lots of different ways to reward shareholders and they obviously
>haven't
>even given it a moments thought.
>Some of what you say indicates that ITC has a problem in not being on a big
>enough
>scale. If it was bigger with a lot more projects then they would constantly
>be
>in the position of being able to hock a completed project off to get a
>positive
>cash flow and reward shareholders.
>Remedies; raise more capital and get into more projects? do some
>partnerships?
>expand more outside NZ?
>The problem is that I have grasped the concepts of VC and ITC in particular
>and I
>can see the flaws. The flaws are not irreparable but they require some
>imagination
>whereas the management has a very limited vision. Probably its doing a good
>job
>in finding and developing IT projects but unfortunately that's not enough
>to succeed.
>
>Did somebody say China? aaaaarrrrrrrrrggggggggghhhhhhhhh!!!!!!!!!!!!!!
>The list of NZ companies who thought 'the solution' lay in China is so long
>I can't
>remember them all ..... how about Milburn, Lion, Richina, Aquaria to start
>with....
>and still they don't learn....now we have Tower, ITC....who's next? If we
>could just
>sell one buzzy bee to each Chinese family, or maybe a pavlova, an insurance
>
>policy, a bottle of beer, a sack of cement, an aquarium visit
>then....Nirvana....
>Is it some sort of disease like vCJD, mad cow disease?
>There's probably some rogue protein in incipient form in Telecom's brain
>right
>now going through the no symptom incubation until after a few years its
>ready to
>leap out and go China! China! china chinarrgghh....


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