Pacific Roundabout

Richard Li's Pacific Century Group is reversing a property called Pacific Century Place, Beijing, into Hong Kong-listed Tricom, currently a subsidiary of China Strategic. In this article, Webb-site.com uncovers a previous link between China Strategic and the property, once known as Nation Wealth Plaza.

Pacific Roundabout
5th May 1999

On 4-May-99 Richard Li's Singapore-listed Pacific Century Regional Developments (PCRD) announced that it was injecting its Pacific Century Place, in Beijing, into Hong Kong-listed Tricom Holdings, in exchange for new shares and convertible notes that will give PCRD a 68% stake in Tricom, to be renamed Pacific Century Cyber-works (sounds kind of hi-tech doesn't it?).

Tricom is 74.9% owned by Star Telecom, which in turn is 62.2% owned by China Strategic Holdings (CSH). There is a history to Pacific Century Place, previously known as Nation Wealth Plaza, which involves, through a circuitous route, none other than CSH itself. To get you in the mood, click here for a picture of the property on Pacific Century's web site.

In February 1997, PCRD announced that it had purchased a 100% interest in Nation Wealth Plaza for US$113.7m in cash from a company called Woolworth Holdings Limited (we don't know who owned that). However, a month earlier, on 11-Jan-97, Hong Kong-listed South Sea Development Company announced that it had, through its 100% subsidiary Kresta Developments, agreed to purchase Tower C of Nation Wealth Plaza for US$61.0m (including all construction and fitting-out costs). The vendor was a Sino-foreign joint venture company called Beijing Jing Wai House and Land Estate Development Co. Tower C was a 19-floor serviced apartment block with a floor area of 21,420 square meters. The floor area of the entire project is 220,905 square metres. As we will see later, the South Sea deal was never completed.

Background to Nation Wealth Plaza

According to a valuation report by Richard Ellis in South Sea's circular of 3-Feb-97, Beijing Jing Wai was issued with a State-owned Land Use Right Certificate for the property on 4-Jan-94. The report also discloses that the joint venture contract for Beijing Jing Wai was approved by the Beijing Foreign Economic Trading Committee on 15-Nov-93, and that Beijing Jing Wai had three parties (A, B and C).

Parties A and C have only Chinese names. Party B, which had a 75% profit share in the venture, was a company called Tai Yau International Investment Group, and was responsible for the entire capital contribution of US$50m, as well as the design, project management and marketing. Party A, with a 20% profit share, was granted the original land use rights on 4-Dec-93 and was responsible for resettlement and demolition work, while Party C was responsible for "procuring all planning approvals, consents and licenses" in return for a 5% profit share. If the project made a loss, it would be borne by Tai Yau. We don't know who owned Tai Yau - if you know, tell us!

The South Sea Deal

On 19-Oct-96 South Sea announced that a wholly-owned subsidiary had agreed to buy 507 car parks at Whampoa Garden, Hung Hom, Hong Kong from CSH for HK$384.8m (US$49.3m). The car parks continued to be managed by Hutchison Whampoa group, the developer of Whampoa Gardens. This was a cash-less transaction in which South Sea paid for the car parks by issuing two convertible loan notes to CSH, with a total value of HK$384.8m.

Note A was 60% of the consideration (HK$230.88m) while Note B was 40% (HK$153.92m). Both were to mature 3 years after issue, bear interest at 7% p.a. (later increased to 12% p.a.) and were convertible into new South Sea shares at HK$0.58 per share.

It was agreed that South Sea's subsidiary would mortgage the car parks and lend (through Kresta Developments) the resulting funds to a PRC property developer for the development of a "Grade A residential/commercial complex in Beijing" and in return South Sea (through Kresta) would have an option to convert the loan into property interests in such development. It was also stated that CSH, so long as it held convertible Note A, would receive 50% of any profits made by Kresta (including interest on the loan to the developer and profits on the sale of any property interests acquired from the developer).

On 11-Jan-97 South Sea announced that a company called Waugh Developments had "procured" that Beijing Jing Wai sell Tower C of Nation Wealth Plaza to Kresta. We don't know who owned Waugh or what (if anything) they were paid for this procurement. Kresta had provided on 25-Nov-96 a loan facility of HK$230m to Beijing Jing Wai (almost exactly the amount of Note A) and Jing Wai had drawn down HK$130m of this, which was taken as part-payment for Tower C. The property was due to be completed by 31-Jan-98.

Given the inter-relation of the car park transaction and the funding for Nation Wealth Plaza, which gave CSH a 50% profit share in the deal on Tower C, we wonder why CSH didn't just deal directly with Beijing Jing Wai.

China Strategic takes back the project

In its 31-Mar-97 accounts, South Sea recorded that it had paid a total of HK$186m deposit for the Beijing property. By 31-Mar-98, the amount paid for deposit, installment and related expenses had risen to almost HK$199.7m. On 22-May-98, South Sea (through Kresta) lodged a claim against the developer for refund of amounts paid plus compensation totaling about HK$249m for alleged breach of agreement. 5 days later, South Sea granted CSH an option to acquire Kresta for $199.4m, roughly the same amount as South Sea had spent on the project. On 29-Jul-98, the developer filed a counter-claim against Kresta claiming it should forfeit the deposit and compensation totalling $72m for alleged breach of agreement. On 4-Aug-98, CSH exercised its option and bought Kresta from South Sea for $199.4m, which was used in Partial Settlement of Note A.

CSH's interim results for the period to 30-Jun-98 reveal that in Sep-98 Richard Li's PCRD then settled the litigation by issuing promissory notes to CSH for HK$199.4m, causing both sides to withdraw their legal actions. Beijing Jing Wei was by now a subsidiary of PCRD. The announcement on 3-May of the deal between Tricom (which is a subsidiary of CSH) and PCRD makes no mention of this transaction or whether the debt owed by PCRD to CSH remains outstanding.

There's a nice twist in this tale. Remember the 507 Whampoa Garden car park spaces that CSH provided to South Sea, which allowed it to participate in the Beijing project, which ended up back with PCRD? Well those car parks were part of 604 spaces purchased from, you guessed it, Hutchison Whampoa, part of the Li empire. On 8-Dec-95, CSH agreed to pay HK$386m for 604 car park spaces, satisfied by the issue of shares in CSH valued at HK$171.4m, a convertible loan note worth $170.5m (redeemed in Jun-98), and deferred payment of $44.1m due on 31-Jan-97. That sale would have provided a nice boost to Hutchison's 1995 year-end results. What goes around, comes around.

Previous articles on Pacific Century Group

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