Lai Sun rises for real estate return

PUBLISHED : Thursday, 05 July, 2012, 12:00am
UPDATED : Thursday, 05 July, 2012, 12:00am


One of Hong Kong's long-established property developers has a message for the market: it's back.

Lai Sun Development hasn't bought land at a government auction since 1997, when it bit off more than it could chew just before the real estate market crashed. But the company has overhauled itself, paid down its debt and hired a new top corporate gun in the form of Chew Fook-aun, a veteran executive who was named deputy chairman last month.

Now the company is eyeing the new administration's plans to increase land supply as a chance to get back in the game.

With more land likely to come up for auction, 'it will naturally provide more chances for us to participate', Chew said.

Chew, 50, moved up the corporate ladder after being chief financial officer at several companies, including the Link Real Estate Investment Trust, Kerry Properties (a stablemate of the South China Morning Post) and most recently at clothing retailer Esprit. He was also previously in charge of the property portfolio of a private family office in Hong Kong.

With his previous exposure in investor relations, Chew has forged close links with global funds and research analysts. He said he hoped to leverage his expertise to inject new life into Hong Kong-listed Lai Sun Development, which trades at a steep discount to its peers on thin volumes.

'We will take a proactive role to explain to the investment community about Lai Sun's business operation after its reorganisation,' Chew said. Chew is also a deputy chairman and executive director of parent Lai Sun Garment (International) and executive director of eSun Holdings, which has interests in media and entertainment, and the group's mainland property arm, Lai Fung Holdings. All told, Chew gets paid HK$13 million for those four jobs, according to the group.

Chew, who plays squash and takes daily swims, said he was recruited to Lai Sun after he resigned from Esprit in December because he could not spend the required time in Europe, where most of the struggling fashion brand's sales are made.

'Appointing a new deputy chairman shows [Lai Sun's] intention to increase its exposure in the property market,' said Jonas Kan, a senior vice-president who tracks property at Daiwa Capital Markets Hong Kong. Kan noted that the group owned a number of quality assets in Hong Kong such as Hong Kong Plaza in Shanghai and the HK$1.1 billion redevelopment of the Ritz-Carlton Hotel into a grade-A office building in Central. The Central project is a 50-50 joint venture with China Construction Bank and due to be completed in the third quarter.

Lai Sun Garment Group, was founded in 1947 by the late textile tycoon Lim Por-yen, the father of the present chairman Peter Lam Kin-ngok. The group diversified into property development, becoming a midsize developer in Hong Kong.

It also went into hotel management, owning a single property in Vietnam, and in 2000, branched into the production and distribution of media and entertainment. The founding family still controls the company, whose main business these days is property in Hong Kong and on the mainland. It no longer has interests in garment making.

Lai Sun Development ran into financial trouble after it paid HK$7 billion for the Hotel Furama in Central at the peak of the market in 1997, an investment that became a big liability as the Asian financial crisis hit. Collapsed property values left the company mired in debt and it took them seven years to dig themselves out from under it. At the peak of its credit crisis in 2002, the firm reported total debts of HK$8.19 billion.

It had to sell core assets, including a 90 per cent stake in the Hotel Furama redevelopment, to Singapore's CapitaLand and American International Group (AIG) in 2003. The hotel site was redeveloped into the AIG Tower, which has been renamed AIA Central. Lai Sun Development still has a 10 per cent stake in the project.

By July 2011, Lai Sun Development's debt load had fallen to HK$2.41 billion, and it now has HK$1 billion in cash on hand.

As a whole, the group of four companies had total cash reserves of HK$5.3 billion, which should be enough to finance the construction of existing property projects, Chew said. Of the group's 15 million sq ft property portfolio, 11 million square feet of residential and commercial projects is under construction in Hong Kong, Guangzhou, Zhongshan and Shanghai. The rest is completed office and retail properties that the company rents out.

Investors have so far been unimpressed with Lai Sun's corporate overhaul. Yesterday, the share price of group flagship Lai Sun Development rose 0.87 per cent, closing at 11.6 HK cents. The benchmark Hang Seng Index, meanwhile, added 0.13 per cent to 19,709.75 points.