Chun Wo's legal battle involving Li Ka-shing thrusts it into limelight
Small property player Chun Wo Development has been thrust into the limelight over its legal battle with Asia's richest man, Li Ka-shing
Chun Wo Development is a small player that has found itself punching above its weight in a legal battle involving Asia's richest man, Li Ka-shing.
Chun Wo was suing for outstanding payments totalling HK$335 million for work carried out at the almost-completed Tsz Shan Monastery in Tai Po.
Cheung Kong Property Development, a unit of Cheung Kong (Holdings), is the project manager of the two-storey building that drew publicity for its bullet-proof doors and windows.
Li earlier told media that he and his charity had donated HK$1.5 billion to the project. At the time, Li said many important people from around the world would visit the monastery, thus necessitating the extra security.
"Bringing the issue to court is something that we really do not want to do," chairman Dominic Pang Yat-ting said, adding that the decision to do so was made only after serious consideration. Pang declined to go into detail, saying legal proceedings had started.
The battle between Chun Wo and the tycoon may come to be viewed as a David versus Goliath encounter. At the least, it has raised eyebrows in the city.
The legal dispute comes as Chun Wo demonstrates pluck of a different form in returning to the battlefield of the city's property market, which is dominated by a handful of big developers, including Li's Cheung Kong (Holdings).
After pursuing property projects on the mainland and in the Middle East, Chun Wo decided the time was right for a return to Hong Kong, but with a new business model.
Pang said the company had considered the potential impact of the legal battle on its business but decided that the proportion of its business conducted with Cheung Kong had been on the decline as the company's contracts for public works rose.
"It is just a contractor dispute but Cheung Kong is involved so it has caught the market's attention," he said.
For Pang, the priority now is not the legal issue, but the future direction of the company, which completed its last Hong Kong development 12 years ago.
"We have tried the Middle East and the mainland, but the outcome has not been very successful."
The company's segment profit excluding tax, interest and finance costs for its property development division, mainly from China, totalled HK$122.9 million last year.
Chun Wo committed to a number of mainland projects - a residential-office-retail-hotel development in Shijiazhuang, Hebei province; a retail-serviced-flat project in Yixing, Jiangsu province; and a commercial-residential project in Yangzhou, Jiangsu province - five to six years ago. During the period, the company also expanded into Abu Dhabi, in part reflecting the increased difficulty faced by small Hong Kong developers to buy land in the city.
The lessons learned on the mainland and in Abu Dhabi prompted the company to rethink its strategy. In particular, it decided to abandon the traditional developer role - buying a site, building a property and then disposing of it.
"In China, we found that it was difficult to find good contractors," Pang said.
Even though the company is strong in construction in Hong Kong, moving the whole team north was not an option. Without a construction team on the mainland, quality control is difficult.
"We asked ourselves if it was the same problem many companies in Hong Kong are facing. Is it one of the reasons smaller developers are leaving the Hong Kong market?" Pang said.
"There is a lot of family money or investment funds that can afford to invest in a property project valued at around HK$2 billion," he said, adding that they seldom invested in greenfield projects because they lacked construction expertise.
Chun Wo hopes to take advantage of its construction arm and industry knowledge to find joint-venture partners that want to invest in Hong Kong property but are not familiar with the market. Such a strategy can help the company make better use of its construction resources, with smaller equity stakes in a larger number of projects.
"We will take a minority stake in each project and take care of the construction work," Pang said.
A recent investment in Sha Tin is an example. Chun Wo took a 20 per cent stake in a joint venture with laminates manufacturer Kingboard Chemical to develop a luxury project on a 354,136-square-foot site in Kau To Hill that they won in a government land auction last month.
The project will comprise 110 villas with a floor space of 2,500 to 5,000 sqft and 40 flats ranging from 1,700 to 2,500 sqft, with an estimated total investment of HK$4.8 billion.
Pang said the company would not confine its investments to luxury projects. "It is not up to us to choose … The market is highly competitive."
