Debt-for-equity swap and cash injection secure venture's future
A lot has changed since the original deal was signed in 1999 to set up a Disney theme park in Hong Kong, but the underlying structure remains largely the same.
The park is a joint venture into which the government invested some HK$3.25 billion in equity. It also loaned the operation another HK$5.62 billion. Disney invested HK$2.45 billion, while a bank loan was also taken out which Disney later assumed. The government's stake in the joint venture was 57 per cent, while Disney held the balance.
The theme park's future development was supposed to be self-funded, but after some challenging years it is not in a position to finance its own expansion. Lower-than-expected attendance has hurt revenue, which limits funding for new attractions and in turn leads to fewer visitors.
The new shareholding structure will essentially allow for a fresh start, with additional funds from Disney being used to pay for a five-year expansion.
If it is approved, the government will increase its equity investment to about HK$9.14 billion by using most of its loan to acquire shares in the joint venture, keeping only HK$1 billion as debt.
Disney will raise its stake to HK$8.71 billion by pumping in about HK$3.5 billion to pay for the expansion, and will also use its loan to buy shares.
The resulting structure will leave the government with some 51.2 per cent of the joint venture, and Disney with the balance.
A wholly owned Disney subsidiary, Hong Kong Disneyland Management has an exclusive agreement to manage the theme park and earns fees for its services.