Vincent Lo's plans for new vehicle China Xintiandi
The billions that Vincent Lo's Shui On Land is investing in Shanghai are not reflected in its share price: hence the launch of a new company
At 64, Vincent Lo Hong-sui has not taken a holiday for seven years. A workaholic still, despite being a billionaire, Lo is hoping all that effort will pay off as he begins building one of the nation's largest property investment companies.
The grand plan, unveiled earlier this month, involves restructuring the Hong Kong-listed Shui On Land, in which Lo has a 60 per cent stake, by injecting up to 68 billion yuan (HK$83.75 billion) of commercial assets into China Xintiandi, a wholly owned subsidiary with a planned separate listing, which will start operations on March 1.
Lo, who remains chairman of Shui On Land, a medium-sized developer with a market capitalisation of HK$2 billion, is taking the lead in setting up China Xintiandi.
"I have never stopped working for the past two years, although I had stepped down as chief executive of Shui On Land," he said.
The restructuring plan aims to unlock the value of quality assets held by Shui On Land, a subsidiary of Shui On Group, which itself was started by Lo in 1971 with a HK$100,000 loan from his late father, Lo Ying-shek, the founder of Great Eagle Holdings.
Four decades later, Vincent Lo has built up a substantial property portfolio in Shanghai, Chongqing, Wuhan and Dalian through his two listed companies, Shui On Land and Socam Development. He was number 17 in Forbes' latest list of Hong Kong's richest people, published on January 11, with a personal wealth reckoned by the American magazine at US$2.65 billion.
The possible assets to be injected into China Xintiandi include the eponymous Xintiandi entertainment and dining area, a trendy segment of Shui On Land's 52-hectare Taipingqiao project in Shanghai, and The Hub, an exhibition centre-retail/office development being built in the same city for a total investment cost of 8 billion yuan.
Despite all this activity, Shui On Land is trading at a price-earnings ratio of 4.46 times, against p/e ratios of 8 to 14 at other mainland developers.
Its shares closed on Friday at HK$3.67, 2 HK cents lower. Lo, speaking to mainland and Hong Kong media at his Shanghai headquarters, Shui On Plaza in Taipingqiao, said bluntly: "The share performance of Shui On Land is very disappointing."
At least part of the problem is the heavy financial burden incurred from both Taipingqiao and another massive redevelopment project in Shanghai.
Shui On Land has spent 13.5 billion yuan in resettlement costs for Taipingqiao and the 1.7 million square metre Rui Hung Xing Cheng project over the past four years.
It has completed about half of the Taipingqiao redevelopment, with finished projects including Shui On Plaza, Xintiandi and Corporate Avenue I.
But the huge outlay has not, so far, seen matching returns. "It is hurting Shui On Land's earning capability, as it received no revenue for these years," Lo said.
Nor is the situation likely to improve soon: three weeks ago, on January 7, Shui On Land issued a profit warning, saying its earnings this year were likely to decline significantly.
The proposed spin-off, currently awaiting approval from the Hong Kong stock exchange, would provide a separate platform for capital raising, enabling China Xintiandi to grow and expand its business.
At the same time, Shui On Land would generate capital from disposing of its commercial assets to China Xintiandi, and would then focus on property development, shifting to small to medium-sized property projects, rather than urban redevelopment, which is time-consuming and requires a long payback period.
Lo, who entered the mainland property market in 1985, said the achievements of the past two decades had left unforgettable memories.
"I was deeply touched when I saw the smiling faces of some 80-year-old grandmas, who gave up their homes in the run-down traditional houses at Taipingqiao several years ago and moved into their new flats with their own bathrooms and kitchens," he said.
"These grandmas told me they were so excited that they felt like it was their wedding day."
On January 4, the Airport Authority in Hong Kong appointed Lo to replace Allan Wong Chi-yun as a director, sparking speculation of Lo's return to Hong Kong's political arena.
He was one of the few property developers to support Leung Chun-ying in Leung's run for chief executive last year.
"CY wants to get more views on how to boost land supply surrounding Hong Kong airport. So far, only 20 per cent of Hong Kong land has been developed and we have to explore different ways, like speeding up planning, to increase supply," Lo said.
However, Lo, who spends two-thirds of his time in China, believes it is hard to return to the Hong Kong property market.
"It is difficult for me to compete with big players in Hong Kong, and unlike China, there are very few sites large enough for me to come up with creative concept like Xintiandi."