Palm Springs set for IPO despite bribery inquiry

PUBLISHED : Saturday, 18 December, 2010, 12:00am
UPDATED : Saturday, 18 December, 2010, 12:00am

Palm Springs, the mainland property developer whose boss is at the centre of an ICAC bribes-for-loans case, is being prepared for an initial public offering.

Zeng Wei, the low-profile real estate tycoon who owns 80.5 per cent of the company, has been charged by the anti-graft body with bribing two former senior ICBC (Asia) bankers to obtain loans to fund Palm Springs' projects.

Palm Springs sold US$200 million of pre-IPO bonds to banks and hedge funds earlier this year. Bank of America-Merrill Lynch sold the bonds to investors including Credit Suisse, Citi and global hedge fund Avenue Capital, an institution that manages more than US$19 billion.

While Zeng has not admitted any guilt, the saga is potentially embarrassing for the banks involved, which rely on public trust in their brands and due diligence processes to sell securities.

As participants in Palm Springs' pre-IPO financing, it would be conventional for Merrill, Credit Suisse and Citi to take a lead role in underwriting the developer's eventual share sale to the public, if the deal happens.

Spokesmen for Credit Suisse, Citi and Palm Springs declined to comment.

An Avenue Capital spokesman could not be contacted by press time.

Palm Springs builds homes and golf courses across China, including in Beijing, Chongqing and Hainan.

It is also building two Four Seasons hotels on the mainland.

The ICAC has charged Zeng, ICBC (Asia)'s former head of corporate lending Derick Chan Po-fui and the bank's former real estate finance chief Chan Yick-yiu with 16 offences related to bribery and handling the proceeds of crime.

According to the anti-corruption body, Zeng gave the two bankers extensive gifts of cash, expensive wine and luxury goods in return for extensions on loans for two companies, named Kostar Investments and Shine City International, that directly fund Palm Springs' developments.

The ICAC has accused Derick Chan of accepting from Zeng a Nokia smartphone, a Zenith watch, a Breguet watch, a Franck Muller watch, 12 bottles of 1985 Chateau Lafite Rothschild wine and HK$3.3 million in cash.

Chan Yick-yiu is accused of accepting from Zeng three bottles of 2001 Chateau Lafite Rothschild wine, a Bulgari watch, two bottles of 1999 Chateau Lafite Rothschild and HK$2.5 million in cash.

A term sheet for Palm Springs' bonds, dated January 11 last year, discusses the possibility of a future IPO of Palm Springs extensively.

Pre-IPO deals, which are common across Asia, allow banks and hedge funds to buy stakes in growing companies and then sell them to the investing public for a profit when the companies launch on a stock exchange.

The arrangements often penalise the companies financially if they fail to complete their IPOs.

Palm Springs' investors expect the company to join an international stock exchange, such as Hong Kong, New York or London, within three years, according to documents.

Lure for investors

The value, in US dollars, of pre-IPO bonds sold by developer Palm Springs to banks and hedge funds earlier this year was: $200m

The ICAC accusations

Property developer Zeng Wei's alleged gifts to his bankers:

Derick Chan Po-fui (former head of corporate banking at ICBC Asia)

Nokia E66 smartphone

HK$3.3 million

Breguet watch and Zenith watch

12 bottles of 1985 Chateau Lafite Rothschild red wine (now worth about HK$106,480)

Franck Mueller watch

Chan Yick-yiu (former head of real estate finance at ICBC Asia and former assistant general manager at Wing Lung Bank)

Three bottles of Chateau Lafite Rothschild 2001 (then worth about HK$2,000 each)

Bulgari watch

Two bottles of Chateau Lafite Rothschild 1999 (then worth about HK$3,000 each)

HK$2.5 million

Sources: ICAC charge sheet, Wilkinson Vintners (London fine wine dealer)