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David Evans

Richard Woo

Swire Pacific is refusing to pay a land premium claim of $4.5 billion issued by the Government for three office towers at Citiplaza in Quarry Bay completed years ago.

 The dispute is to be settled by arbitration, Swire said yesterday.

 The company said the claim was ill-founded and it was not liable to pay.

 The Government's claim was unusual, analysts said.

 Swire was not asked to pay land premiums for the buildings before construction, as is customary, they said.

 Moreover, Swire's net-asset value would be seriously affected if the company paid the land premium, the analysts said.

 Some analysts were also concerned that if Swire lost the arbitration, the case could be used as a precedent by the Government to seek land premiums for other buildings where none had been previously demanded.

 Yesterday, Swire's share price fell $2.60 to finish at $41.40.

 The three properties involved are Citiplaza Four, Three and One towers completed in 1991, 1992 and 1997.

 The buildings provide 1.63 million square feet of office space.

 Swire plans to expand office space in the area by 450,000 sq ft by increasing the scale of Citiplaza One and rebuilding Mount Parker House.

 Swire said if it had to pay the claim, it would seek discussions with the Government about the basis of calculation for the premium on each property.

 The company said the dates by reference to which the premium was assessed and the question of interest, if any, would also need to be addressed.

 It also said the claim was a monetary issue in which the Government had agreed it would not terminate the land leases of the properties or require the buildings be modified or demolished.

 Swire said if any payment were awarded, it would substantially lower the company's consolidated property valuation reserve.

 However, the company said a payment would not affect its consolidated profit and loss account.

 Surveyors said the three buildings, and Citiplaza shopping arcade and the Taikoo Shing residential development, were based on the same land lease.

 Analysts said Swire had believed the land lease allowed it to build commercial buildings and did not require any premiums.

 The Cityplaza complex was an integral part of Swire's plan to build an Island East mini-metropolis and turn it into a business hub, shopping centre and leisure destination.

 Starting with the opening of Cityplaza Four in 1991, the plan culminated with the 1997 opening of Citiplaza One, a 27-storey, state-of-the-art building, the sixth Swire development to open in five years at Taikoo Shing.

 The success of Cityplaza Three and Cityplaza Four, provided the blueprint for Cityplaza One.

 In August 1998, Swire said it would spend $500 million to overhaul part of the Cityplaza shopping centre over two years.

 The renovation's second phase is due for completion this year, with a six-screen cineplex and four restaurants.



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Swire Group

Arbitration to resolve dispute over premium on Citiplaza office towers at

Swire