Money Matters

Hong Kong property has become a sunset industry for Li Ka-shing

‘When a mainland Chinese developer like Goldin Financial has defeated five locals in bidding for a MTR residential project, Superman Li knows diversification is the only way to go’

PUBLISHED : Tuesday, 17 January, 2017, 10:13pm
UPDATED : Thursday, 02 February, 2017, 6:15pm

Li Ka-shing’s game plan is seldom questioned. Cheung Kong Property Holdings’ return to the non-real estate business with its largest ever bid in the Australian energy business is an exception.

Didn’t he say a better delineation from the non-real estate business will mean high transparency and better valuation in the 2015 restructuring?

Yet, the reality is when a mainland developer like Goldin Financial Holdings outbid five locals for an MTR Corp residential project, Superman Li knows diversification is the only way to go for his property arm.

Goldin Financial consortium wins rights to Ho Man Tin MTR station residential property development

The MTR and Goldin tie-up is the least expected any industry veteran, including some insiders, could imagine.

If the former is the royal, the latter is a cowboy.

The subway operator is a lot more demanding than the government. It asks for not only the highest bid but also proof of financial clout and track record in handling sizeable developments.

It retains the title of the land while the government would pass it on to the developer once payment is received. That means an MTR partner cannot rely on a mortgage to pay for the land.

This is followed by tight scrutiny by MTR, as a joint-venture partner, on the project itself, including the funding and design, among others.Any foul play would be impossible.

These issues were considered hurdles for mainland developers which play with leverage.

To the local big boys, MTR projects are the last frontier, protected from mainland rivals which have outbid them in more than half of the recent government land sales.

Therefore, Goldin did not appear to be a genuine competitor at all. It is a nobody in the mainland real estate industry despite all the headlines it has made. Its wine and polo loving founder Pan Sutong forced a kiss on a popular singer in front of cameras. The developer also built a 117-floor skyscraper in a remote part of Tianjin.

The company’s market performance has been like a roller coaster. Goldin Properties Holdings, another listed company controlled by Pan, fell 41 per cent on May 21, 2015, after soaring from HK$5 to HK$29.50 in two months.

When it recently put up an above consensus bid of about HK$9 billion – HK$6.3 billion in land premium to the government and a more than HK$2.5 billiion lump sum payment to the MTR – for a Ho Man Tin project, which is way above other bids, even the rail operator was in doubt.

Its reliability is understood to have been questioned and a due diligence check was conducted. MTR staff visited its projects in Tianjin and Kowloon Bay to find work quality “at par if not above that of some Hong Kong developers”.

It has only HK$84 million cash and a leverage of 64 per cent by June. Yet, it had a total equity of HK$14.4 billion, including the office tower and another Ho Man Tin residential project that were valued at HK$19 billion.

It is also partnering with Huarong International Financial Holdings, a unit of the country’s largest state-owned bad debt manager, in the latest venture.

Huarong has not only taken a 16.5 per cent stake, it contributed a HK$660 million shareholder’s loan and lent HK$660 million to Pan to join the bid.

After an assessment of risk and reward, MTR went for Goldin. “It is not foolproof. Yet, with the land title in hand, MTR has little risk,” an insider said.

The Goldin consortium has paid HK$1 billion. The full payment is due next month.

Given mainlanders’ appetite for prime assets, Goldin should not have much problem in raising the money unless Beijing does anything draconian to protect the yuan.

Earlier this month, Goldin got a four-year loan of 9 billion yuan from China Cinda Asset Management, another state-owned bad debt manager, to fund its Tianjin skyscraper.

This is the beginning of the end that even Superman Li can do little about.