Earlier this year the people of Hong Kong and Macau looked on with fascination as Stanley Ho sued five of his children, two of his wives and his banker over the holding company that controlled his fortune.

While few families have circumstances much like the Ho’s, it was a welcome reminder of the importance of estate planning. “There is undoubtedly a huge number of families who just haven’t prepared at all,” says Mark Smallwood, head of wealth management solutions at Deutsche Bank Private Wealth Management Asia Pacific. “It’s really surprising. I see some very wealthy families who haven’t even drawn up wills.”

Yet the circumstances of wealth are more complex than ever: one lawyer refers to a client with 220 British Virgin Island companies holdings his family’s wealth. And Asia is at a pivotal moment for wealth transition. It has been estimated that 80% of Asian wealth is due to pass to the next generation in the next 15 years. “In Asia we’re at that critical stage of this inter-generational wealth transfer,” says Michael Troth, managing director and regional head for Citi Trust Asia Pacific. “Some families have planned very well, wealth has been transferred successfully and you don’t read about it. But families where perhaps things are not in harmony – really they ought to be planning for that.”

The most straightforward advice bankers have is to do something. “If you haven’t done any planning, do some,” says Troth. “Give certainty to what you want to happen. And if you know there is going to be a problem, deal with it, and make sure your structure is robust enough to deal with the challenges.” As Smallwood says: “If you fail to plan your succession, then the state in its wisdom will do it for you.”

First step is a will: a clinically clear will, drafted by a lawyer, spelling out exactly what the drafter wants to happen and taking into account assets in multiple jurisdictions (which might require more than one will). But that’s only a start. “The will is an essential tool, but there are some drawbacks in relying solely on the will, in particular for high net worth families,” says Smallwood. First, where a will is in place, when the individual dies their estate is frozen until a grant of probate is executed by a court, which can take between three months and several years, he says. “Until it has been completed, the assets are frozen, liquidity is not there and possibly important decisions cannot be executed.” On top of that, probate is a public exercise, making the will available from the court – not something everybody wants to happen.

Both Smallwood and Troth recommend a family trust to hold liquid and bankable assets, and if necessary shares in operating companies or real estate, for example. “The trust has many features and attractions, particularly for families in Asia,” Smallwood says. For a start, a trust is a private contract between settlor and trustee, meaning there is no public record of the terms of trust. “The family’s privacy is maintained and the disposition of the assets to beneficiaries is kept from public scrutiny,” he says. There’s also no probate process and the individual can clearly instruct the trustee about what should happen if the individual dies or becomes mentally incapacitated, or if children are still minors at the time. It can also protect family wealth from future creditors.

In Ho’s case, there was no shortage of structuring involved; the furore included two British Virgin Islands (BVI) firms, Action Winner and Ranillo Investments, as defendants, since those two firms had control of Lanceford, which is the holding company containing most of Ho’s wealth. This is a common complexity. “Everyone walks around today flashing their Gucci bags,” says one banker, “but in the 90s in Hong Kong everyone was flashing their BVI companies. It was almost a status symbol to have a lot of BVIs.” Typically in Asia the family business has a holding company – sometimes domestic, sometimes tax-neutral offshore – with a range of shareholders, with the matriarch or patriarch often keeping the shares in their own name until they die and not passing them on to the kids until the very end. But what is often overlooked is that many of these asset may lead to BVI or other tax-neutral companies, and the transfer of shares in those companies to the next generation may not have been addressed. This ties in to the growing international nature of family assets. “As the second generation is getting involved, people are diversifying assets out of core holdings in the family business, and spinning them off into bankable accounts, private equity and real estate and so on in London, the US, Switzerland and Singapore,” says Smallwood. “Often the various holdings do not flow into an organised structure so it’s susceptible to problems when they die.”

The nature of families themselves adds to the challenge. “Families are much more global, both in terms of where the beneficiaries and family members are and where they are investing,” says Troth. “If all you did was invest in your own country, and all your beneficiaries and heirs were there, that would be simple. Once you’ve got family members with a passport or PR or residency somewhere else, or international investments, that’s where you’ve got the dimension of other countries’ tax and legal systems.”

Smallwood says there is “nothing at all wrong with using an offshore tax neutral structure”, provided there’s a clear mechanism in place for the transfer of wealth. “A lot of families have a BVI and sign a share transfer but leave it undated, and leave the name they’re transferring it to blank, because they don’t want to pay for a simple trust. That piece of paper becomes a bearer share and whoever controls it can potentially control very significant assets. There’s a tremendous opportunity for fraud and family disputes.”

Troth adds: “The BVI is a great jurisdiction. It crops up more because there are more companies incorporated there than anywhere else, but regardless of which jurisdiction and structure you use, the ground rules are the same: set it up properly, for legitimate purposes, with robust structures and good corporate governance. The old days of trying to hide some money – that’s gone, the world has changed.”

Historically, one challenge has been that private banking in Asia has been seen more as a source of investment advice than estate planning. One banker grumbles: “In Asia people don’t want to pay for service, and that is the problem with succession planning: it requires people to sit down with qualified lawyers and bankers to formulate the plan and the various mechanisms within it.” But there is a sense of changing attitudes. “In the families I deal with, I’m seeing people much more willing to get engaged in a discussion about succession planning,” says Troth. “There’s been a sea change, in fact.”

In essence, estate planning is an attempt to bring order to the unpredictable. “It’s not just a simple of matter of: when I die, it all moves to so and so,” says Smallwood. “There are a lot of what ifs: the first is you don’t know when you’re going to die, and all sorts of things can happen between now and then.” In particular, families themselves get more complicated, and run to more generations: the main controlling group of India’s Tata conglomerate, for example, is now in its fifth generation of stewardship and is understood to involve more than 110 companies and subsidiaries and at least 40 different family members or groups. “But most of the wealth in Asia has been created in the last 30 or 40 years,” says Smallwood. “That first generation are now in their 70s and 80s and they are passing on. So we are at the take-off level of a J curve, where there is going to be this enormous transfer of wealth. Families need to be prepared for it.”

Asian stock markets are suffering – even more than the US markets whose banks precipitated the credit crunch. While the S&P 500 index was down 12.2% in the year to August 18, Hong Kong’s Hang Seng index is down 24.7%, Singapore’s STI 19.9%, India’s Sensex 27.8% and China’s CBN600 an eye-watering 55.5%.

While the experience has been painful for investors, many feel that the decline represents a rare buying opportunity in Asia. There might be worse to come, but almost universally analysts and fund managers feel that investors with a long term view will be rewarded. The question is: where to pick?

The consuming issue of the moment is just what is happening to China. China’s economy is slowing, but all things are relative: it has slowed from 11.9% year on year GDP growth in 2007 to 10.1% in the second quarter of 2008, which by the standards of any other market is still breakneck speed. Even bears like Kenneth Rogoff, a Harvard economics professor and former International Monetary Fund economist, speak only of a “significant growth recession in China” to “at least one year of sub-6 per cent growth,” still dramatically higher than is routine in the developed world. The threat, though, is chiefly inflation, which hit 8.5% in April; on top of that, a US and European recession would clearly hit exports.

In the short term, some are still bearish about China. Stephane Mauppin-Higashino heads a product specialist team at Credit Agricole Asset Management, which offers a global emerging markets fund. His fund is overweighting Russia and Brazil at the expense of China and India. But looking further ahead, he has little doubt about the country’s prospects. “We believe the growth is here to stay,” he says. “Whether it’s nine or 10 or 11 or six, China will grow. It will average seven to eight per cent annualised growth through the cycle and we don’t have much of an issue with it falling below the trend, even to five per cent, if it were to happen.

“The issue we have had with China is the price: valuation, and inflation. It’s been a fantastic story but too expensive.” 

Some investors are also troubled by transparency in Chinese listed companies. Hugh Young is the managing director of Aberdeen Asset Management Asia in Singapore; he actively avoids most Chinese stocks. “At the company level, we really don’t have a clear view of earnings because of the lack of transparency,” he says. “Aside from that, so much depends on policy action: the level of stamp duty, the pipeline of IPOs, the release of non-tradable shares, and so on.”

That said, most foreign investors in China don’t go anywhere near the so-called A-share markets, which are domestic Chinese stocks listed in Shanghai and Shenzhen. Generally, they can’t, except through tightly controlled occasional institutional allocations from the Chinese state. Instead, they are more likely to invest in H-shares (Chinese companies listed in Hong Kong), red chips (Hong Kong listed and incorporated companies with substantially mainland operations and management), or Greater China plays – and in this regard Taiwan is looking increasingly interesting.

Taiwan has been a perennial underperformer over the years. “Over the last eight years the market has consistently disappointed, primarily due to policies that have encouraged capital flight,” says Adrian Mowat, chief Asian and emerging equity strategist at JP Morgan in Hong Kong. But when a new government was voted in on March 22, there was great hope of a change in fortune. President Ma Ying-jeou was elected on a platform that included a much more friendly relationship with mainland China than his predecessor, Chen Shui-bian. Ma will not push for independent statehood for Taiwan as Chen did, but will instead look for a better economic future for Taiwan predicated on greater freedom of trade, investment and general cooperation with the world’s most populous and vibrant nation.

An initial euphoria that prompted a 20% climb in the stock market in the run-up to and through the election has since unwound, partly because of the behaviour of world stock markets, partly because of the outlook for electronics stocks that dominate Taiwan’s economy, but also with a sense of reality about just what can be achieved in pro-China relations. Still, as CY Huang, the president for Greater China investment banking at the Taipei financial institution Polaris, points out: “Nobody can make magic in two months.”

And change is taking place. The iconic moment came with the announcement of direct flights between Taiwan and mainland China, albeit only on weekends. But there are more substantial shifts happening in investment and financial services. A long-standing limit on Taiwanese companies obliging them to invest only 40% of their net worth in China is being raised to 60%, and is likely to rise further. In June, limits were relaxed on the amount Taiwanese funds can invest in Chinese stocks. Additionally, an equally long-standing ban on Chinese investment in Taiwan’s stock and futures exchanges has been lifted: qualified domestic institutional investors, or QDIIs, which are Chinese institutions with approval from Beijing to invest overseas, will be permitted to buy in. Foreign mutual funds backed by Chinese capital can also now come in to Taiwan. “The government wants to attract PRC money to come into Taiwan,” says Huang. “Previously, you needed a declaration: if HSBC wanted to bring money in it would have to declare none of it came from China.”

Measures like this have two effects: they mean that Taiwanese companies are more likely to use Taiwanese banks and other service providers to handle their business, rather than moving the whole lot offshore to avoid restrictions; and they mean there is a greater chance of capital flooding into Taiwan instead of constantly leaving it. It’s this sort of momentum that has attracted Mowat at JP Morgan to make Taiwan one of his four major overweights in emerging markets today (the others being China, Mexico and Turkey). “Our argument is that during the DPP administration [under Chen] you saw capital flight and the government appeared to have no economic policy. The KMT government has come to power, liberalised investment restrictions for Taiwanese going into China, and has improved relations with the mainland.” Taiwan has three prongs for accelerating growth in the next year, Mowat says: tax cuts, infrastructure development and deregulation.

Elsewhere, prospects vary from market to market. (India is a whole other subject, beyond the scope of this article.) In southeast Asia, markets are struggling, whether through basic economics (Singapore, which being fundamentally a country of service industries suffers more than most when the US and other major trading partners run into trouble) or unusual specifics (the increasingly fractious political environment in Malaysia).

But the turmoil has created some unlikely opportunities. Global fund managers searching for a combination of low stock market valuations and high earnings potential might want to take a second look at Thai equities. The Stock Exchange of Thailand (SET) not only trades on a 2008 PE of 9 compared with 12.6 in Malaysia and 11.6 in the Philippines, but it offers a dividend yield of 4.9%. Better still, after years of dismal returns, analysts are forecasting that corporate earnings will increase by 21.3% this year and by 6.6% next year.

In its latest strategy report on the Asia-Pacific, Merrill Lynch rates Thailand as one of the cheapest markets in the region and suggests that investors overweight it. Merrill is not the only one with a buy on the market. Andrew Stotz, head of research at CLSA also believes that Thai stocks look attractive. “With the Thai market down almost 20% this year and with valuations looking the lowest in Asia, we believe that investors should be aggressively buying the market,” he says.

As is so often the case in Thailand, however, there is one major problem. And that’s the political situation. Few analysts believe that the coalition government led by Prime Minister Samak Sundaravej will survive the next 12 months let alone its full term in office. Furthermore, despite the recent decision by deposed former Premier Thaksin Shinawatra to seek political asylum overseas, the threat of mass street protests and a possible violent confrontation has not gone away.

Concerns over the fragile political situation together with fears of rising inflation, which reached 9.2% in July, have already dampened expectations for the second half of the year. The Securities Analysts Association recently downgraded its forecast for the SET Index to a range of 628 to 828. That compares with a current level of 702.

Still with the SET index having fallen by 20% since the beginning of the year and by more than 60% since its all time high in January 1994, canny fund managers will certainly find bargains. Asia Plus Securities suggests that investors look at property company Land & Houses, coal miner Banpu and energy giant PTT. These companies are expected to show impressive second quarter earnings as well as solid long term growth potential. Meanwhile Kim Eng Securities recommends select blue chips like Bangkok Bank, PTT Exploration and Production (PTTEP) as well as Total Access Communication.

So after the recent sharp correction in equity prices, has the stock market finally bottomed out?  Poramet Tongbua, head of research at Tisco Securities in Bangkok, certainly thinks that it has. “We believe that the market already reflects more than 80% of the worse-case scenario for political developments, rising inflation and higher NPLs. Consequently we are convinced that Thai stocks now offer an attractive risk to reward ratio for longer term investment,” he says.

Perhaps the best news for investors is the fact that for the first time since 2005, managers of listed companies in Thailand have become significant buyers of their own stock, suggesting that they believe that their businesses are undervalued. According to Phatra Securities, so far this year management of 47 of the SET100 companies have been net buyers of their own shares on a cumulative basis. That compares to only 28 companies where management have been net sellers.

To date, foreign investors have shown considerably less confidence in the market. Since January, they have sold off Bt86 billion (US$2.6 billion) of stock, representing most of what they had accumulated since the beginning of 2006. As a result, large capitalized companies like Advanced Info Services, PTTEP and K-Bank are at their lowest level of foreign ownership for at least three years. If and when foreign investors decide to return, Ian Gisbourne, strategist at Phatra Securities believes that these stocks could be amongst the star performers.

But whilst Thailand does offer some compelling reasons to buy, fund managers would do well to remember that this has been one of the worst performing markets in the region over the past decade. And whilst by most measures Thai stocks look cheap, investors will want to know that this time round, the market really will go up. Stotz for his part remains upbeat. “In Thailand, analysts are at the tail end of four long years of earnings downgrades. To us, earnings look much more vulnerable in China, Singapore, India and Hong Kong.”

In terms of sectors, three have been particularly badly hit in Asia. One is financial services, although banks in Asia generally had very limited subprime exposure. The others are real estate and gaming.

Here, too, there is ammunition for the bold contrarian. “People are going to make an awful lot of money out of real estate in the next couple of years,” says Mowat. “But at the moment it’s incredibly out of favour, particularly Chinese real estate. We think it’s oversold.”

Nobody has escaped. Take Capitaland, the Singaporean blue chip often considered the best run company in the country, the unquestioned leader in Asia’s fledgling real estate investment trust sector, and a true real estate blue chip. By August 19 it had almost halved in value in the space of a year. Ascott REIT, one of its trusts based around serviced apartments, looks even worse: well over $2 a share a year ago, 99 cents in August.

The fall in stocks like these reflects a number of dynamics. A slowing economic outlook reduces demand for high-end residential property and commercial property. Stocks that have used a lot of gearing – this applies to many REITs – have been particularly badly hit. But generally property related share prices have fallen by much more than the prices of the underlying assets, which causes some fund managers to see a buying opportunity – if it can only be timed right.

The pain has hit the region’s other developed markets too, notably Australia, which has the most entrenched REIT market in the region. “It’s been incredible, really,” says Andrew Saunders, CEO of Real Estate Capital Partners, a Sydney-based real estate fund manager. “The A-REIT sector was worth about A$145 billion in June 2007. Now it stands at A$70 to A$75 billion.” Saunders says some REITs are trading at as much as a 45% discount to net tangible assets, despite being underpinned in some cases by world class assets – such as Australian bank Westpac’s head office on Sydney’s Kent Street.

Arguably the chief attraction of this sector is the extraordinary yield. Australia is a high-dividend market at the best of times – CommSec chief equities economist Craig James says the Australian stock market today is paying its highest yield for 17 years, with blue chips paying as much as 6 or 7%, particularly in the banking sector – but the REIT sector is more generous still.

Fund manager Stephen Hiscock of SG Hiscock & Co in Melbourne says the sector has a forecast yield of over 9% for 2009, and 11% if one big and distorting stock, Westfield, is excluded. One fund manager calls it “potentially the buying opportunity of a decade. But the problem is, you know it could still all halve again tomorrow.”

The other big listed property market in the Asia Pacific region is Japan, which at the start of this year had a higher market cap in its REIT sector than the rest of ex-Australia Asia put together, at US$46.035 billion, though it has fallen since. There are 42 REITs listed in Japan.

Japan’s property sector generally has been hit by a credit crunch despite the fact that Japan had little exposure to subprime. 43 real estate developers filed for bankruptcy in July alone, mainly because they could not access funds. This, rather than the underlying properties themselves, has been the problem: at a time when Jones Lang LaSalle puts Tokyo CBD office vacancies at only 3%, relatively big names such as Urban Corporation and Ardepro have been badly hit by concerns about their ability to access credit.

Once again, there’s a question of whether falls create opportunities for investors. A recent report by Merrill Lynch said around half of all J-REITs are now trading below book value. They also pay what is, by Japanese standards, an exceptionally high yield of over 5%. And among listed real estate developers generally, those with the strength of balance sheet to ride out the credit crunch are likely to be well positioned and modestly valued by the end of it, and even in a position to acquire from troubled peers.

Already, several landmark transactions have taken place this year: CBRE Research highlights the acquisition of the Resona Bank headquarters in Otemachi, with Mitsubishi Estate acquiring a 73% sectional ownership of the building for Y162 billion. Others include GIC Real Estate, the property investment arm of the Government of Singapore Investment Corporation, purchasing the Westin Tokyo from a Morgan Stanley real estate fund for Y77 billion; Morgan Stanley Real Estate Investment acquiring the Citigroup Centre in Shinagawa-ku from Citibank for Y48 billion; and another Morgan Stanley acquisition, of the Shinsei Bank Building in Chiyoda-ku, for Y118 billion. REITs, too, have been acquisitive this year, with examples including Industrial and Infrastructure Fund acquiaring IIF Haneda Airport Maintenance Center for Y42.2 billion, and Japan Retail Fund acquiring Aeon Sapporo Hassam Shopping Center in Sapporo for Y18.4 billion.

Yuto Ohigashi, an analyst at Jones Lang LaSalle, sees opportunity. “While the type of real estate buyers has changed from high-leveraged investors to low-leveraged ones, the Japanese market remains attractive due to the sheer size of its investment grade property market compared with that of other Asian markets,” he wrote in a recent report. “Among Japanese real estate, Y490 trillion is held by corporations, about Y68 trillion of which is considered as revenue-generating properties. Part of the remaining real estate, which is valued at about Y420 trillion or more than six times revenue-generating real estate, is likely to be simply dormant, suggesting the enormous size of the potential market.”

The other sector to have been horribly hit is the gaming industry. Two years ago there was great fanfare and optimism in Macau. The state had opened up the gaming industry once dominated by Stanley Ho and awarded three concessions and a further three sub-concessions, bringing competition and money into a previously seedy sector. Groups like Las Vegas Sands, Wynn Resorts, Melco and Galaxy Entertainment had all committed considerable sums to casino development in the years ahead, and in terms of gaming revenue (as opposed to retail and entertainment in the same area), Macau has now overtaken Las Vegas as the world’s gaming centre. Many of the new ventures are very much in the Vegas style, combining world class entertainment and retail facilities with the traditional casinos, plus top-of-the-line hotels.

But if the share price performance in real estate looks bad, that’s nothing compared to gaming stocks. Consider Dore Holdings, which specialises in the VIP junket game, providing high-roller players to casinos. It has gone from HK$3.60 per share to HK$0.21 in a year – that’s a 94% fall. While not all stocks have suffered quite so dramatically, the situation has not been kind to anyone: when Sociedade de Jogos, the casino business owned by the ultimate gaming tycoon Stanley Ho, sought a Hong Kong listing, it took three years, more than 30 court cases, an application for judicial review on the eve of the float which caused half of the retail investors to back out of the offering, and a halving of the targeted amount to get away. And when it did, it promptly started sinking.

Part of the reason for the problems in Macau’s gaming industry are related to an apparent rethink on China’s part about just what it wants Macau to be. Over the course of this year it has introduced a number of measures designed to cool the growth of Macau’s gaming industry, to reduce the maximum length of time Chinese nationals can spend there, and to cut the frequency of their visits. Since the development of Macau is to a large extent based on the promise of China’s population, this has hit the industry hard. Increased competition is another concern.

But some consultants feel the future is much brighter than these headwinds would suggest, which again raises the possibility of buying opportunities. The Las Vegas based consultancy Globalysis estimates that Macau will experience 28.8% growth in gross gaming revenue (GGR) in 2008 year on year, to reach a total of US$13.5 billion. “It now looks like Macau will bypass not only the Las Vegas strip once again in terms of gaming revenue in 2008, but for the first time, also that of the entire metropolitan area of Las Vegas,” said Jonathan Galaviz, partner at Globalysis, in May when he launched his most recent report on Macau. “Macau’s continued growth in GGR is a reflection of the generally strong macro-economic environment that Macau finds itself within Asia.” If he’s right, then the sector is clearly oversold and presents opportunities.

A big question for the Asia Pacific region is what happens to commodity prices, which will have differing impacts in different locations. Of major markets, Australia is probably the one that has benefited most from the commodities boom: it is home (or a joint home) to world mining leaders like BHP Billiton and Rio Tinto, and its role as a quarry and breadbasket for ardent importers like China has led it to a stunningly protracted period of economic strength. Consequently Australia has not had a year of less than 2.5% GDP growth since the early 1990s, remarkable in a developed economy.

Australia’s market has been hit as hard as any this year though, and was down 21.4% year to date by August 18, partly as a result of market contagion spreading to the commodity sector. Those who believe the commodities boom has further to run tend to be more bullish on Australia than on other markets, although the short term is likely to be less favourable. “Given the relative important of resources in the Australian share market, Australian shares may underperform global share markets for a while yet as the commodity correction runs its course,” says Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney. “Asian shares are likely to be key beneficiaries of the correction in commodity prices given Asia’s high reliance on commodity imports.”

Asia, then, as ever presents a wide range of differing stories. Putting money into such volatile markets requires some tough nerves and a willingness to ride out some likely losses along the way. But, as one fund manager says: “Contrarianism is where the real money is made.”

It’s tough to imagine a worse environment for an IPO than the one that faced Sociedade de Jogos de Macau, the casino business owned by Asia’s most legendary gambling tycoon Stanley Ho, when it listed on July 16.

There’s the hellish global market conditions, for a start: the Dow hit its lowest level for two years the night before SJM started trading in Hong Kong, and the Hang Seng has been hovering around similar lows. Very few issuers have braved these markets with an IPO and those who have attempted it have looked either brazen or desperate, and usually both.

But SJM faced a host of localised problems too. On the day of launch, Macau announced a series of restrictions on mainland visitors to Macau, the latest in a number of measures designed to cool the growth of Macau’s gaming industry and, in particular, curb the enthusiasm of mainlanders in helping it grow. The maximum length of time Chinese can stay in Macau en route to other places, and the frequency of their visits, have been cut by China.

The Chinese are the lifeblood of Macau. It’s hoped that the enclave will attract gamers from all over the world – hence the increasing appearance of the Las Vegas model of casinos, combining entertainment and retailing with the gambling tables – but the truth is Chinese patrons are the main prize, and they can gamble nowhere else in their own country. These measures have slammed gaming stocks (an extreme example, Dore Holdings, which specialises in catering for high rollers, has fallen from HK$3.50 to HK$0.22 in a year).

And then there’s Winnie. She’s the sister of Stanley, and the two are not close – in fact, she has filed more than 30 law suits against him and his companies, on a variety of grounds such as the structure of the companies and the nature of the IPO. The most recent of these was a call for judicial review on the eve of the listing, causing a one week delay to the float, after the books on the issue had been closed.

While the courts took a look, SJM and its lead underwriter, Deutsche Bank, elected to allow retail investors to retract their commitments for a full refund – and more than half of them did, even though a court ruling in the meantime held that the IPO was legitimate and could go ahead.

Although retail only accounted for 15% of the deal, this still meant more than 7% of the deal’s total book walking out the door. (Institutions, having made their decisions based on a more thorough analysis of the company story than the more flip-happy retail investors who dominate Hong Kong, generally stayed in.) Since the books were closed and there was no way to go back and reallocate – and the retail book had barely been covered in the first place – Deutsche had to cover the shortfall, although it did so by means of a series of total return swaps to other investors, meaning that today Deutsche has no effective exposure to the underlying stock.

The deal itself, when it finally came, raised half the figure that was being mooted early in the year, settling for $494 million. It has declined in trading since launch.

Some, though, think it a miracle such a deal ever got done at all. “It’s taken three years, 37 court cases, two attempts at getting a judicial review, two prospectuses plus a supplemental, in the shittiest market the world has seen since the 30s, in the casino business,” says one person close to the deal. “It’s had to get through legal and compliance, at least two regulators, and the Hong Kong exchange. That is a Herculean task, an unbelievable banking challenge.”

The other way of looking at it is to wonder what sort of masochistic zeal possessed the issuer to go ahead with such vast challenges in the first place. Ho needed the money: his eldest casinos, like the  alluringly hideous Lisboa, are hopelessly dated against the new wave of Las Vegas Sands-styled resorts, and need to be upgraded. Ho, who had Macau’s gaming industry to himself for decades, now faces five competing licensees (one of them, Melco, run by his son) and by some estimates now has a gaming market share only in the high teens in percentage terms. To stay in the game, so to speak, he clearly has to spend.

The other underlying reason appears to have been a realisation that to have any kind of clarity as a business, it needed to get all the potential law suits and judicial reviews out of the way. It surprised nobody connected with the deal when the call for judicial review came in at the last possible moment before listing; it had always been a question of when, not if. But now, there is a listed entity with its legitimacy confirmed by some of Hong Kong’s highest courts, and that gives it a much more investor-friendly base to build on.

Still, the sight of Greater China’s more colourful tycoons reaching the public markets has always been profoundly entertaining. One has to enjoy a prospectus with a risk section covering not only building delays, labour shortages and business rivalry, but money laundering, cheating, illegal mainland casinos and the risk that people win too much. It even includes this delightful clause: “STDM [the parent] and Dr Ho have the ability to exercise substantial influence or control over us, which allows them to influence or control our business in ways that might not be in the interests of other shareholders.” Ho is in his late 80s now but his kind will be missed when they’re gone.

 http://www.euromoney.com/Article/1990170/Hong-Kong-equities-Ho-gets-SJM-to-the-table.html