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Peggy Sito

Developer fights his way back from the brink

If Lo Yuk-sui decided to write a story based on his personal struggle to wipe out a debt of $14.8 billion, he might well turn for inspiration to writer Ernest Hemingway, who once wrote: 'A man can be destroyed but not defeated.'

During the past seven years, Mr Lo, chairman of Century City International Holdings, Paliburg Holdings and Regal Hotels International, saw his wealth drain away after his three companies were forced to sell the bulk of their assets to repay huge debts accumulated through over-borrowing.

The drastic decline in property values after the market crash in late 1997 compounded his problems.

Fortunately, Mr Lo was neither destroyed nor defeated.

Today, his financial problems are well on the way to being resolved as Hong Kong's economy and the property market enter recovery mode.

Meanwhile, the companies' creditors have approved debt reduction proposals that will swap loans for equity via new shares in the firms.

The strain of the struggle shows on the face of the 60-year-old businessman, but he says he is ready to return to the fray.

This time, however, he vows to conduct business in property and hotel expansion in a more prudent fashion.

'In 1997, I was overconfident about the future of Hong Kong,' Mr Lo recalled. He said his companies were too aggressive in their expansion, and banks were overeager to thrust loans at him.

The result of all this was that Mr Lo's companies launched on a rapid expansion programme in the 1990s. At one time, the capitalisation of his three companies totalled $40 billion.

In June 1997, as part of the expansion drive, Paliburg and Regal spearheaded a consortium that beat Cheung Kong (Holdings) and Citic Pacific to buy a  housing site in Wong Ma Kok Road, Stanley (now known as Regalia Bay), for  $5.5 billion. It was the last government land auction under British rule.

A year later the market slumped and optimism evaporated.

After making huge investments in various projects, the three companies reported a loss of $9.98 billion in 1998. It was the biggest loss in the history of Hong Kong's listed companies. Debts at Mr Lo's companies topped $14.8 billion.

At the time, it was rumoured that Mr Lo and his family, who lived in the 6,000-square-foot penthouse suite of the Regal Hongkong in Causeway Bay, would lose their home if the hotel arm of his business was forced to sell the flagship property to repay debts.

Mr Lo denied the rumour but admitted he was in deep financial trouble. He likened the problem to  being 'hit by a 100-foot wave'.

But not for a moment did he think of giving up.

'As captain of a ship, I cannot jump into a lifeboat and watch my ship sink,' said Mr Lo, who is no stranger to weathering rough seas, financial or personal.

In 1983, he helped his father, Lo Ying-shek,  clear a $2.4 billion debt owed by Great Eagle, the property firm headed by Lo senior.

In 1984, he was involved in a widely publicised family feud after wresting control of Regal Hotels and Paliburg from Great Eagle.

Regal Hotels and Paliburg have since become Mr Lo's hotel and property flagships.

More recently, the struggle has been to emerge from the crushing burden of debt.

'This may be my destiny,' said Mr Lo, referring to his personal history of debt and transfiguration.

To achieve solvency, he started disposing of assets and bringing in new investors. In 1999, Regal Hotels sold its North American hotels to Millennium & Copthorne  for about $4.48 billion.

In 2000, Paliburg transferred its 100 per cent interest in its two major properties, Paliburg Plaza and Kowloon City Plaza,  to its bondholders to cancel  $5 billion in debt.

Paliburg also sold Red Hill Plaza, a retail complex in Tai Tam, and transferred $1.9 billion in Regal Hotel shares to bondholders in four equal tranches.

Last year, Regal sold  Regal Oriental Hotel,  opposite  Kai Tak Airport, to Mr Lo's long-time friend Francis Choi Chi-ming, a property investor,  for $350 million.

Following the exercise in asset disposal and restructuring, the three companies were able to reduce their overall debt to less than $5 billion.

In the course of assets sales, Mr Lo did not dispose of the Regalia Bay site in Stanley. At one time, analysts considered the Regalia purchase a big mistake, saying it had pushed him deeper into the financial quicksand.

'How wrong was I in my decision to buy the Stanley site? Regalia Bay is now proving not such a bad project,' Mr Lo said.

'Cheung Kong has also entered the fray, with the second-highest bid. After failing to acquire the Stanley site, Cheung Kong bought [the other site at the auction], in Hunghom, which has been developed as the Harbourfront Landmark at a  higher price [than Regalia Bay]. They  had to make a huge provision on this project.

'The difference is that Cheung Kong is big enough to cope with this size of provision. We are not.'

Thanks to a recovering luxury property market, Mr Lo has had a chance to prove himself to the business world. So far, more than 80 of 139 houses in the Regalia Bay development have been sold. Mr Lo expects to make $7 billion from Regalia Bay, $2 billion more than last year's forecast of $5 billion.



Undefeated developer bounces back