Government secrecy in land tenders
9th November 2012
Webb-site noted last year that the HK Government has increasingly shied away
from the open bidding of land auctions in favour of the sealed-envelope tender
approach to sell sites. It probably stems from the fear of negative publicity if
an auction fails to match a reserve price, or perhaps some fear of collusion if
the bidders can see who else is bidding and somehow get together to rig a bid.
In tenders, the Government routinely announces the terms of the winning bid,
but not the other bids. The Government also announces far less than it knows
about who is behind the bids. Each tender form requires the bidder to name its
"parent company", if any. This does not say "ultimate parent", so there is a
risk that some shells would just name the immediate parent (the registered
holder of the bidder's shares) which could just be another meaningless shell.
However, most bidders comply with the spirit of this and name their top parent
company. Take a look at a typical "Tender
Notice and Form of Tender". On page 2 you will see Clause 6(c):
"After the award of the tender, the identity of the
successful tenderer and the unsuccessful tenderers and their parent company (if
any)... can be disclosed by the Government in response to public or media
enquiries. The Government reserves the right to announce the said tender results
without the need to seek the prior agreement of the tenderers and their parent
company (if any)."
But the Government's announcements give false transparency - they list
only the names of the bidders, which are usually just shell companies with names
you have never heard of. Take
this example, published on 24-May-2012, with the names of 24 bidders for 2
sites (including the winners). Doesn't mean much, does it? That's the only
public written record of the sale. In practice, journalists call up the Lands
Department, and ask who is behind the winner and sometimes the other bidders.
This leaves no public record of the disclosure, just fragments in newspapers.
So Webb-site has, since March 2012, been writing to the Government every time
we spot one of these announcements, and asking for the names of all the parent
companies (if any). After a 7-week delay on the first request, while they
consulted with lawyers, they began supplying the lists. Here is the list they
supplied for the example given above (we added the right-hand column).
Much clearer, isn't it? Now we can see that Cheung Kong, K Wah, Sino Land,
Sun Hung Kai Properties and Wheelock bid for both sites, while the smaller site
in Sha Tin attracted smaller bidders, 5 of which are listed companies. In 3
cases, the parent companies were private and not incorporated in HK. We can't
tell you where they were incorporated though, because amazingly, the Government
doesn't collect that information. In every jurisdiction, company names are
unique at any point in time, but two companies incorporated in different places
can of course have the same name. So if you don't know the place of
incorporation, then you don't know which company you are dealing with, just its
name. So for example, we can't tell you who owns "Meganew Limited" or where it
Clearly there is a transparency problem here. Webb-site put the following
recommendations to the Government by phone and in emails, that they should:
- Require in tender forms that each bidder (if a corporation) encloses a
copy of its certificate of incorporation, stating its place of incorporation
and company number.
- Require in tender forms that each bidder disclose the name of its
ultimate parent company, if any, and enclose a
copy of the ultimate parent's certificate of incorporation, stating its
place of incorporation and company number.
- Publish, in the press release and Gazette, the names, places of
incorporation, and company numbers of the bidders and their ultimate
- Require bidders to disclose, by way of a
diagram, the ownership structure of the bidder, down to the level of 10%
interests. There can't be more than 10 such holders at each level, so that
would not be difficult. An exemption could be made for parents which are
listed companies, because we already have a law which requires disclosure at
the 5% level of those.
The Government defends opacity
The Director of Lands responded by email as follows:
"The supply of the information about the tenderer's parent
company (if appropriate) as provided for in the current Form of Tender would be
sufficient for Lands Department. There is no intention to seek additional
unnecessary information in the land sale by cash tender such as the shareholding
structure of the tenderers, the places of incorporation of tenderers or their
In other words "if we've got the cash, then we don't care where it is coming
from". Such information is "unnecessary". By closing its eyes to the ultimate
ownership of bidders and the humans behind them, the Government cannot be taking
any steps to prevent money-laundering, something that it imposes great
obligations on banks and
estate agents to do. Well if they are worried about money-laundering using
individual properties, then surely the same concerns apply to land transactions.
Shouldn't the Government do its share, by requiring
and publishing information from bidders on who is behind the anonymous shells?
Particularly on smaller sites, the ultimate owner is often behind a private
offshore company, not a well-known listed
As for the non-publication of the names of parents that they already
receive, the Government's response was:
"As to the parent company of the tenderer (if applicable), the
public may make a search at the Companies Registry for any available information
in the register."
That's quite ridiculous, for several reasons. The Companies Registry only has
information on companies registered in HK. A shell bidder does not have to be
registered in HK. Even if it is, it is probably a new company that has not yet
filed its first annual return, and even if it has, the information is behind a
pay-wall and may be outdated (annual returns are only snapshots of
shareholdings). Even if you can get that, it will probably only show that the
registered shareholders are other intermediate layers of offshore companies,
protecting the owners from disclosure.
So, having tried to resolve this privately with Government, we now go public, and call
on the Government to implement the above recommendations.
It is frankly surprising that the Government cannot see the upside in greater
transparency. Behaving in such a secretive manner only strengthens public
perceptions that the Government protects and colludes with developers. What does
the Government stand to lose by publishing the information? The public interest
in land transactions with the Government, where public resources are at stake,
demands an increased level of transparency as compared with private-sector
transactions. Nobody has to participate in these tenders, but those who do
should submit to this transparency.
Perhaps the Government is just embarrassed by the fact that for large sites,
the parent companies of bidders come from a small group of developers who
dominate the market and are the only ones large enough to bid. So by keeping
their names off the written record, the illusion of greater competition can be
maintained. Shell companies are different names every time.
Investors in listed companies would also like to know how active their
company is in the land tenders, even if the bids are unsuccessful. It provides
insight into the future path of those companies. For each tender since Mar-2012,
we have been collecting that information, but you haven't. Shouldn't the
Government publish it?
© Webb-site.com, 2012