Swire’s ‘next chapter’ ends when the scion leaves Hong Kong

The appointment of Merlin Swire as president of Hong Kong’s famous trading house in 2018, which bears his family’s name, has been billed as the start of the group’s “next chapter”.

The 47-year-old was the first member of the family since the 1860s to take on the role of “taipan”, the traditional name of the head of a British-owned Hong Kong trading house.

But three years later, that chapter seems to have ended to the surprise of some observers of the company, given the crisis facing the group in Hong Kong. He announced last month that he would return to London to manage the holding company Swire, leaving the airline group in ownership, whose flagship is Cathay Pacific Airways, facing some of the biggest challenges in its history.

The 205-year-old company has been shaken by political turmoil on its home soil and the Covid-19 pandemic. Cathay is fighting for survival and Swire’s vast Hong Kong property portfolio has taken a hit.

“Throughout the company’s history, it’s the worst time to take a step like taipan,” said Richard Harris, a fund manager at Port Shelter Investment Management, based in Hong Kong.

The replacement for the starting chair is Guy Bradley, first head of Swire’s property business. This indicates that the group is likely to focus more on real estate and less on Cathay, which has been hit by the closure of international borders.

But analysts are wondering if the change in direction will be enough to get the conglomerate back on track.

“They need to adjust their strategy.” . . They need a shock to get everyone to wake up, “said Kevin Au, director of the Center for Family Affairs at the Chinese University of Hong Kong.” Swire has been too conservative… Because of the history of its success ”.

John Samuel Swire, son of John Swire, founder of a Liverpool textile company, began trading with China in 1861 and opened a partnership in Hong Kong in 1870. Merlin Swire is the great-great-great by John Swire-grandson.

Investors and observers say Merlin Swire is leaving Hong Kong after making only a modest impact on the conglomerate’s empire in Asia. A year after he took the helm, Cathay’s staff took part in anti-government protests in the territory, encouraging China to threaten society with regulatory action. After Merlin Swire met with government officials in Beijing, Cathay fired the chief executive. Rupert Hogg while in the chair John Slosar renounced shortly after.

Those developments, while appearing to smooth relations with Beijing, have underscored how the Communist Party government increasingly expects the Swire group to publicly support its positions even when they clash with the UK’s foreign policy.

Chinese President Xi Jinping walks next to Merlin Swire at an annual roundtable summit of the Global CEO Council in Beijing in 2018

Chinese President Xi Jinping, second from right, alongside Merlin Swire, far right, at an annual summit of the Beijing Global CEO Council roundtable in 2018 © AFP via Getty Images

In 2018, the group welcomed the appointment of Merlin Swire and moved to Hong Kong as a sign of the company’s firm commitment to the former British colony. “This move back to Hong Kong reflects how important Hong Kong is to the group’s activities,” the company said.

Today, Hong Kong has become an attraction for its performance. Swire Pacific announced a rare annual underlying loss in March of HK $ 3.9 billion (US $ 502 million), as the pandemic hit Cathay and his Hong Kong company. Jardine Matheson, a rival trading house of the colonial era that has diversified more widely in Southeast Asia, made an underlying net profit of US $ 1 billion for the same period.

Hong Kong, while part of China, is also separated from the mainland by border controls, meaning Cathay does not have a national market to refuse. Hong Kong’s quarantine measures of coronavirus, among the toughest in the world, have not helped.

Swire Pacific's financial performance is turbulent

“Cathay is in the ICU [intensive care] for the foreseeable future, ”said David Blennerhassett, an analyst at Ballingal Investment Advisors.

Swire needs to “try something different” and focus on the mainland Chinese property unit previously managed by Bradley, said a former Hong Kong businessman who is familiar with the company.

Swire’s other interests include the bottling of Coca-Cola in China, marine services for the energy industry and Taikoo Sugar, a company dating back to the colonial era. But it is concentrating more and more on property in Greater China, having developed mixed commercial and retail districts on the mainland.

Merlin Swire has always played an important role as head of the John Swire and Sons holding company, which is located above Swire Properties and Swire Pacific, listed in Hong Kong. “Really important strategic decisions are always made by the family in London,” said one person familiar with the company.

A guest at a dinner party at which Merlin Swire described him as calm and attentive. “She was one of the most humble and humble people I’ve ever met in business,” said a former business partner.

Insiders have said Merlin Swire and her family took the tube or taxi to London, while the former business partner told the Financial Times that she flew with low-cost Australian carrier Jetstar on a trip to New Zealand.

Swire Pacific bets a lot on the property

According to one person who worked closely with Merlin Swire, his tenure represented a “decent minimum” but “he never clicked well” with his chair position. Swire defended his record, saying his leadership had “done an excellent job maintaining our progress” and the company was focused on “sustainable growth”.

Some figures from the Hong Kong establishment say Merlin Swire is just one in a long line of executives at Swire and Jardines who have never chosen the Asian city as their long-term home.

“There’s more prestige to be back in London than to be in Hong Kong, where it’s hot and humid and crowded,” said a veteran Hong Kong entrepreneur who is familiar with the company. “When you’re extremely rich, you can have this option and employ good people to manage things for you.”

Some insiders of the company have said they were not surprised by Merlin Swire’s return to the UK. The need for a change of leadership so that Bradley could increase the company’s focus on property became clear, they said, when the pandemic hit Cathay financially last year.

A former Swire executive said the big challenge for Bradley would be to reposition the company. Swire’s recent losses in its Hong Kong office and retail properties have been partly offset by its real estate activity in China, which has been boosted by the country’s economic boom from Covid-19.

However, a slightly larger share of the company’s real estate assets per square foot are still in Hong Kong and most of those in mainland China are already developed. Swire said he had a “good pipeline” across mainland China, Hong Kong, Indonesia and Vietnam.

“In China, they move very, very slowly, they’re very conservative,” the former Swire executive said. “The Swire family needs to show how confident they are in China… And put their money where their mouth is.”

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