Money Matters
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Ailing Chinese Estates boss Joseph Lau striving to outwit God

Gone are its HK$30 billion crown jewels, replaced by receivables

PUBLISHED : Friday, 14 October, 2016, 10:07pm
UPDATED : Friday, 14 October, 2016, 10:58pm

Joseph Lau Luen-hung is a fighter – even serious kidney failure and heart disease cannot stop him.

The 65-year-old tycoon, who has lost his hair and a lot of weight, had to be supported by bodyguards when he attended the funeral of his card game buddy Cheng Yu-tung this week.

Touching anybody is unthinkable for Lau, a knowngermophobic.

Equally unthinkable – to many of his privileged class – is putting up with the suffering of renal failure. Healthy kidneys are easily available for “peanuts” across the border and in many other developing nations.

But that’s not an option for Lau. He chooses to remain in Hong Kong to avoid serving a five year and three month jail sentence in Macau for bribing a senior official. Extradition is apparently too big a risk.

There is no time to question God’s sense of humour. Instead, Lau has been working on the takeover of the crown jewels of his listed vehicle Chinese Estates Holding with just a token amount of cash.

Ever since his 2014 conviction, the developer has sold four properties to Lau for a total of HK$28.4 billion. Among them are three top shopping malls in Causeway Bay and Tsim Sha Tsui that enjoy close to full occupancy.

The formula is the same for each deal. The company sells a property on the grounds of reduced mainland Chinese tourist numbers and a bad retail outlook.

Private negotiation with Lau is preferred over bidding because it could be done “without disturbing the market”, said the board, adding that Lau was a “committed and capable purchaser”.

The price was in line with numbers from an independent valuer, said its directors, including his son, his daughter, two sisters of one of his girlfriends, and three independents.

All shareholders were promised close to a 100 per cent special dividend fromeachto safeguard an approval by the minority. After all, with Lau holding 75 per cent of the company, disposal to a third party is almost impossible.

That translates into a special dividend of HK$23.5 billion for Lau, which offset 86 per cent of his purchase bill. A mortgage will do the rest.

The only exceptions to this approach were the sale of Mass Mutual Tower and two mainland properties. They went to China Evergrande which is controlled by Hui Ka-yan, Lau’s ex-debtor and another card game buddy .

The disposal of Mass Mutual Tower at an above market price made possible the distribution of more cash to Lau.

The big question is; what have Lau’s moves left Chinese Estates with.

The company insists that remaining assets, profit and revenue are “substantial and sufficient” for its continued listing. The details, however, don’t look comforting.

By June, a third of its total assets, or half of its net assets, were linked to debt-ridden China Evergrande which is sitting on a 450 per cent gearing ratio.

This percentage would be much higher had the disposal of the HK$10.8 billion Windsor House in Causeway Bay been counted in.

Chinese Estates’ exposure to Evergrande includes HK$14.7 billion in receivables resulting from the three property disposals, the majority of which will take six years to pay off.

There is also a HK$4.6 billion holding in Shengjing Bank that Evergrande controls, which has lost 33 per cent of its initial value.

The only sizable Hong Kong property remaining with Chinese Estates is Harcourt House. The rest of the company’s assets are HK$8 billion in bond and stock investments, several local development projects, three office buildings in London, and some second tier shops in Causeway Bay and West Kowloon.

There is little doubt that Harcourt House will eventually be sold. For Lau, that will add the final touch to his reputation as the smartest in town.