Tomson Pacific bets on Shanghai's revival

WITH John Lees, the inspector appointed by the Financial Secretary in August 1992 to investigate into the affairs of Tomson Pacific, expected to report back any day now, directors of Tomson Pacific are looking forward to getting back down to business without a cloud of uncertainty hanging over their heads. Not that they have been resting on their laurels. While Mr Lees has been piling through the paperwork, trying to unravel some alleged misdemeanours, Tomson's directors have been busy building the company a new future. The company has been transformed since the time of the alleged affairs by Tomson management and its then 34 per cent-owned associate World Trade Centre Group, or their subsidiaries, sometime between 1990 and the instigation of the investigation in 1992. What was essentially a Hong Kong and Macau property investment and development company, with heavy involvement in hotels and tourism, is today virtually a pure China property play. The big change came when Tomson decided to offload its entire holding in World Trade Centre to a mainland group in October last year. Tomson sold its entire interest in World Trade Centre to Rovtec Investments, a 70 per cent owned subsidiary of China National Cereals Oils and Foodstuffs Import and Export Corp, in a complex deal involving a trade-off of assets. As part of the deal, Tomson agreed to acquire from World Trade Centre its 75 per cent stake in the holding company which controlled Tomson China's mainland property portfolio and PVC pipe-making businesses. Other assets injected into Tomson included Bond China, whose main asset was the Huizhou Brewing Co in Guangdong province which brews Dragon 8 and which recently won the Carlsberg licence for China until the year 2006. Meanwhile, Tomson has been quietly offloading all its Hong Kong property, tourism and hotel interests to become one of the stock exchange's few pure China plays. When Tomson announced its interim results in January, it declared a $166.6 million exceptional profit from the sale of shares in Sociedade de Empreendimentos Nam Van SARL, the Macau reclamation firm. In March, it sold its shares in Charoong Thai Wire and Cable Co for 382.88 million baht (about HK$118.69 million), realising a modest profit before expenses of just $7 million. Tomson's refocused portfolio centres heavily on Shanghai, where it now has stakes in nine property developments at various stages of completion, including a massive proposed golf course and associated housing development. It also has a 30 per cent stake and 50 per cent stake respectively in the Zhudi and Longbai housing participation projects in the city, where it has contribution capital to two state-run mass residential developments in exchange for a proportional share of the completed homes to trade on once completed. Also, in Shanghai, is one of Tomson's three joint-venture PVC plastics factories in the process of being built and one metal door manufacturing plant it inherited from its trade-off with World Trade Centre. Its other two PVC factories under construction are in Zhejiang and Shandong provinces. Outside Shanghai, Tomson still has the Guangdong brewery and an associated property development in Huizhou, Guangdong. However, this is now to be coupled with a large joint-venture property development comprising six 26-storey blocks of flats on top of a commercial podium. The factories are aimed at providing Tomson with a steady recurrent income, while the property developments will be essentially for trading purposes bringing in more fluctuating gains. The first of Tomson's Shanghai developments likely to be completed is the first phase of its Jianian Villas housing estate in Hongqiao, which will comprise 19 buildings containing 110 units. First phase construction is now 90 per cent finished except for interior finishing and landscaping which are expected to be completed and ready for sale later this month. The next to come on stream will be the Tomson International Trade Building, a 25-storey office tower with commercial podium in Waigaoqiao Free Trade Zone, Pudong. Site preparation and pre-sale planning is due to take place towards the end of this year. This will be followed by the sprawling 405,500 sq metre Tomson Industrial Park in Outer Gaogiao, Pudong, with factory buildings, storage and bonded warehouses, parking lot and an office building. It will be completed in six to eight years, with the foundation work for phase one already begun and expected to be partially completed by the end of next year. One of the most exciting projects on the cards in Tomson's directors' minds is a world-class, 18-hole golf course, with a club house and surrounded by 600 super deluxe villas. Tomson managed to get in on the game before the authorities in Beijing tried to slam the brakes on new golf course developments. The first batch of membership sales has already begun, although the course will not be ready until the second half of next year. Among the host of developments scheduled for further down the road is the Luijiazui Financial Building in Pudong, where construction has now reached the sixth floor. This office block is scheduled for completion by the end of next year or early 1996, and as with all Tomson's developments, profits from pre-sales will be booked on a completion basis. Tomson intends to retain the top floors for its own use, to house its Shanghai headquarters. Not only is Tomson pumping nearly all its resources into Shanghai, it is pumping them nearly all into one district - Pudong, where land supply seems endless and the resulting flood of new property developments all round means it is heading for a serious over-supply. William Wu, executive assistant to Tomson's managing director David Tong Cun-lin, defended the company's decision to put nearly all its eggs in one basket. He said: ''Shanghai has a very prominent past and we believe in the blessing from the State Council to promote Shanghai into the prominent financial centre in China to the year 2010. ''Shanghai will emerge in the next 10 to 20 years as the leading centre in China, if not the whole of Asia.'' As for getting out of Hong Kong, Mr Wu said: ''The directors of this company think property prices in Hong Kong are like a runaway train and are unattainable for the bulk of people.'' In Shanghai, he conceded the risk was high, but he said the potential return was higher too. Patrick Lau, the company's financial controller, said: ''If we invested all our money into the Hong Kong property market at the moment, it is equally risky.'' Company secretary Yeung Kam-hoi said Tomson was well aware of the volume of development plans for Shanghai by other companies, but said it had gone into the city early and consequently thought it was ahead of the crowd. Mr Wu added: ''Our move into China is an educated step. We are not going in blind. ''We have tended to acquire land cheap, so even if prices fall, the margins are high so we should still make a good profit.'' Most of Tomson's projects will come on stream in 1996. Beyond these, Tomson is looking for long-term growth through its 90 per cent stake in the Shanghai Tomson Real Estate Investment and Development Co which has won a 20-year government licence to redevelop in some of Shanghai's run-down inner-city areas. Together with its mainland joint-venture partner, it will provide new housing both for the domestic mass market and sale to foreigners. Tomson sees the potential here as enormous, providing it with a steady stream of work and profits for many years to come. Mr Lau conceded that Mr Lees' investigation and the associated probe by the Commercial Crime Bureau had some impact on Tomson's ability to raise funds in Hong Kong, meaning it has had to look to China for bank loans. Nevertheless, it had not dampened the company's directors' determination to forget their troubles and expand.