Li, Tung urged to cut stake in Oriental Plaza
A consortium controlled by Li Ka-shing and the family of chief executive hopeful Tung Chee-hwa is under pressure to further reduce its majority stake in the troubled US$1.5 billion Oriental Plaza project in Beijing, sources say.
Speculation that Chinese officials are trying to persuade Mr Li and Mr Tung to cut their combined interest comes as China's largest insurer, People's Insurance Co of China (PICC) (Group), looks set to buy 15 per cent of the huge office, residential and commercial property project in the central district Wangfujing, according to mainland-backed newspaper Ta Kung Pao.
It is unclear if Mr Li and Mr Tung have agreed to the proposals, which could dilute their collective stake even further from 72 per cent if the PICC sale proceeds.
Mr Li's flagship Cheung Kong (Holdings) has a 64 per cent stake in the project, while Orient Overseas (International), controlled by Mr Tung's family, holds 23 per cent. Three other mainland companies hold the remaining 13 per cent.
PICC's 15 per cent stake, valued at about US$220 million, would come mainly from Mr Li's holding.
Sources said the insurer would still need final clearance from the State Council, China's Cabinet, before proceeding with the deal.
Oriental Plaza, with an originally designed size of about 10 million sq ft, saw construction halted for more than 18 months until the middle of this year amid disputes with the McDonald's fast food chain and the government over breaches of height regulations.
Mr Li was reported last week as saying a state organisation had agreed to buy a 15 per cent stake in the project.
He said having a big state organisation as a shareholder would help speed up construction. The development, next to the Forbidden City and near the Tiananmen Square, hit the headlines in late 1994 over an attempt to evict McDonald's from its prime site at the corner of the busy Wangfujing Street, part of the site to be cleared.
McDonald's refused to move, saying its 20-year lease was signed not long before.
The well-publicised tussle grabbed the attention of central government authorities which later discovered the project, supported by the now disgraced Beijing party chief Chen Xitong , did not receive necessary central government approvals.
It also emerged that the initial design for the commercial, office, and cultural and entertainment complex breached the Chinese capital's height regulations.
It exceeded 70 metres in an area where the maximum allowable height was 30 metres.
The central government halted the project towards the end of 1994, demanding a revision of plans to scale it down.
In May, the State Council was reported to have given its final blessing to the revised plans for the project, and work to clear the site resumed.
HIGH STAKES Pressure for consortium to reduce stake as PICC Group poised to buy 15 per cent of the project Unclear if Mr Li and Mr Tung have agreed to pull out of the troubled property development
