Chau's $741m transfer was in sight
The Shanghai property tycoon was close to completing settlement with BOCHK when he was detained
Shanghai property tycoon Chau Ching-ngai was close to repaying the remaining $741 million on a $1.77 billion Bank of China (Hong Kong) Holdings loan when he was detained by mainland authorities in May.
'The loan was current and being paid back in accordance with the loan agreement,' said a source close to BOCHK. 'The last payment was to be made in accordance with the loan agreement as well.'
According to sources close to both BOCHK and Mr Chau, the final payment would have been funded largely by a related party transaction between the tycoon and his 75 per cent-held Shanghai Land Holdings.
Under the transaction, announced on April 28, Shanghai Land proposed paying Mr Chau $661.5 million for a luxury Shanghai property development, De Oriental London, which he controlled through two British Virgin Islands-registered companies.
An extraordinary general meeting to approve the transaction was postponed indefinitely after Mr Chau's detention by mainland authorities in Shanghai.
Mr Chau's reliance on a related party transaction to pay off the loan balance raises questions about his financial standing - and BOCHK's due diligence procedures, which it has insisted were followed to the letter in this instance.
It also casts doubt on whether Shanghai Land's proposed acquisition of De Oriental London was influenced by Mr Chau's need to pay off his loan and BOCHK's desire to get its money back. Because of BOCHK's financial relationship with Mr Chau, it was able to influence the composition of the company's board.
A source close to Shanghai Land's board defended the transaction, saying that the property project was not overvalued. 'The board was very careful because they knew the transaction would be examined closely,' the source said.
In late April the board cited an independent property assessment that valued De Oriental London at $945 million.
'The directors believe that the proposed transaction represents an excellent opportunity to diversify its property investment in China and to capture the exponential growth in the property market there and particularly in Shanghai,' the board said.
It added that it would establish an independent board committee - advised by an independent financial adviser - to vet the deal on behalf of shareholders.
A property consultancy 70 per cent controlled by Mr Chau's wife, Mo Yuk-ping, stood to reap at least $30 million for its role in the transaction.
Had mainland authorities detained Mr Chau after the transaction was approved and BOCHK's loan paid off in full, China's premier international financial institution might not have been dragged so deeply into the evolving scandal.
Former BOCHK chief executive Liu Jinbao was recalled to Beijing on May 23.
But BOCHK has maintained that he is the subject of an investigation into problems at the Bank of China's Shanghai branch and that the inquiry does not concern the bank's operations in Hong Kong.
BOCHK granted Mr Chau's privately held Hong Kong flagship, New Nongkai Global Investments, a $2.1 billion facility to fund its takeover of locally listed imGO in July last year.
ImGO - then a wireless communications company held by Ericsson, Investor and Hutchison Whampoa - was subsequently renamed Shanghai Land Holdings.
Of the $2.1 billion facility, New Nongkai drew down $1.77 billion. By the time of Mr Chau's detention in May, he had paid back more than $1 billion, leaving an outstanding balance of $741 million.
BOCHK successfully applied for New Nongkai to be put in receivership last month.
