24 October 2004
It's no secret that Webb-site.com was opposed to the Cyberport project from the outset, on the grounds that it represented unnecessary government intervention in the property sector and, most importantly, that the 24-hectare waterfront project was awarded to a developer without tender. The fact that the developer was a son of Li Ka-shing, a long-time business partner of Hong Kong's Chief Executive Tung Chee Hwa before he was selected to run the territory, raised obvious concerns.
In fact, we were the first publication to point out on 22-Mar-99 that the Government's claim that "two-thirds of the site will be for Cyberport development" obscured the fact that only 17% of the floor area was for offices, while 76% was residential, a 2,900-unit project now known as Residence Bel-Air or, misleadingly, "Bel-Air on the Peak" in its latest phase, which of course is closer to sea than summit. The TV ad campaign featured a woman flouncing around a stunning villa which in fact was not in Pokfulam but was the Villa Ephrusi de Rothschild in the South of France. The illusion even extends to page 11 of the annual report of Pacific Century Premium Developments Ltd (0432) where you will find a picture of the gardens of the French Villa opposite a description of the Cyberport.
Our ground-breaking commentary on the Cyberport earned us the unwelcome attention of the Kroll private investigation firm, which hired a man posing as a journalist to probe our coverage. We turned the tables on him and Kroll, resulting in front-page coverage in the local press and questions about the freedom of speech in Hong Kong.
Five years later
Now fast forward to 2004. Five years on, the Cyberport portion of the project is finished, and very shiny and nice it is too. We never doubted it would be well built, we just don't think the Government should have been involved. Now it is the outright owner of all portions of the project except the residential part, where it will receive a share of the profit (if any) on the development, net of Cyberport construction costs, to reflect the land input. The profit-sharing ratio has never been disclosed, but was based on the peak cash outlay from PCCW (however fleeting) relative to the value of land contributed by the Government.
Recently we went to the movies at the Cyberport, ate in the hotel, and wandered around the shopping mall. It all echoes somewhat, because it is still largely empty, and no business person would want to stay in the 5-star hotel unless they were either doing business in the project or enjoyed getting away from the hustle and bustle of the business district. But as the offices fill up over time, that should solve itself, and as the residents move in, the mall should come to life. There is still the long-term hope of an MTR line to connect the project to the North of the island and bring in traffic.
The Cyberport is managed by a Government-owned company called Hong Kong Cyberport Management Co Ltd (HKCM) which was incorporated in Dec-99. In fact, although HKCM is the public face of the Cyberport, with a board which includes outside directors, there are three companies involved - Hong Kong Cyberport Development Holdings Ltd (HKCDH) and its two subsidiaries, HKCM and Hong Kong Cyberport (Ancillary Development) Co Ltd (HKCAD). HKCDH holds the master title to the land and granted sub-leases over the Cyberport portion to HKCDH and over the residential portion to HKCAD.
Under Section 111 of the Companies Ordinance, the companies must hold their first AGM within 18 months, by Jun-01. That means that the first audited financial statements would be for a period which ended before then, since accounts must be prepared for each AGM. As the Government's normal reporting year ends on 31st March, we can assume that the first accounting period ran to 31-Mar-01. By now, HKCDH and its subsidiaries should have 4 sets of audited financial statements.
So we went to the Cyberport web site and searched for the statements. No luck. Perhaps the failure to post them was just an oversight, we generously thought. So we wrote to the appointed Chairman of HKCM, Mr John Strickland, who also happens to be a fellow director of Hong Kong Exchanges and Clearing Ltd (0388), of which your editor is a director. It turns out that this withholding of information is not an accident, but policy. He wrote:
"I do not expect that we will be publishing an Annual Report until the project is substantially complete."
Leaving aside the fact that the project is substantially complete (the Cyberport portion was opened on 27-Jun-03 and officially completed on 28-Jun-04), that is no excuse for secrecy over the accounts of publicly owned assets. How can you have accountability without accounts?
As of 8-Jun-00, the date the development right was granted, the Government agreed a figure of HK$7.8bn (US$1bn) just for the land value of the residential portion of the project which, as you know, only occupies 1/3 of the site. Overall then we are talking about an opportunity cost of US$3bn in land, being the estimated fair market value of the whole site at that time if it had been sold off for residential purposes. The public has a right to know whether it is getting value for money, and how the project is being managed.
We call on the Government to publish all the audited financial statements from 2001-2004 of each of HKCDH and its subsidiaries HKCM and HKCAD without further delay.
There is a useful comparison to be made with another Government property company with an "incomplete" project, namely the Hong Kong Science and Technology Parks Corporation (HKSTP), which was established on 7-May-01 after a 3-way merger of other Government-owned companies. It has published annual reports for 2001/02 and 2002/03 on its web site. We don't agree with the existence of HKSTP, as it is interventionist and has "subsidy" written all over it, but at least the accounts are publicly available and open to scrutiny or ridicule, as the case may be.
We cannot think of any other government-owned company or "trading fund" (a separate financial entity) that does not publish at least financial statements and in most cases a full annual report. For example, you can get the annual reports of the Post Office, the KCRC, the Trade Development Council, the Legal Aid Services Council and all sorts of Government entities online, but not the Cyberport.
Unless and until the Government publishes the accounts of this controversial project, we are left with the unavoidable assumption that there may be something in the audited financial statements that they do not wish the public to see.
West Kowloon - a Cyberport for the 21st Century?
Members of the public must also be wondering whether the same veil of secrecy will fall over the controversial 40-hectare West Kowloon development after it has been awarded. There are some startling similarities. On 17-Mar-99, Donald Tsang, then Financial Secretary, defended the Cyberport by saying:
"It is wrong, very wrong, to say the Cyberport is a property development"
Uh-huh. And on 5-Sep-03, as Chief Secretary, defending the proposal for West Kowloon to bundle cultural facilities with the usual mix of shopping malls, hotels, offices and flats in a single massive project, he said:
"This is not another property development project. It is about developing a new cultural icon for Hong Kong".
Uh-huh. Rather than simply tendering the land in manageable parcels, each with designated usage, to the highest bidders, the Government plans to award the entire project in one massive block, and has come up with assessment criteria involving a large element of subjectivity in which "financial proposals" account for only 75 marks out of 300, or 25% of the overall scoring. Even then, a comparison between competing financial proposals will be difficult because they could involve profit sharing on property development (where future profits are unknown), up-front land premiums, revenue sharing or royalty payments. Applicants are even invited to suggest what plot ratio they had in mind. It makes the assessment process one of comparing apples and oranges and selecting the "best" fruit.
And if this is not a property project, then why is it that you don't even qualify to participate unless you have experience of developing at least one project with a construction cost of at least HK$3bn, and of marketing and leasing property developments with a floor area of at least 250,000 sq. m. (2.69m sq ft) at any one time?
The deadline for submissions has passed, and there are 5 proposals. However, one of them is from an unknown individual called "Lam, Sze-tat" and probably won't pass the qualification criteria unless he is fronting for a large developer. Another, from Swire Pacific Ltd (Swire, 0019/0087), was innovative but probably breaches the tender criteria by proposing a "cultural harbour" involving other government sites, including the existing Cultural Centre in Tsim Sha Tsui and the Tamar site, which just happens to sit between the harbour and Swire's Pacific Place, a view which Swire would presumably be keen to protect with low-rise development at Tamar. The Government has indicated that Swire's proposal is likely to be rejected.
That just leaves 3 viable proposals. Henderson Land Development Co Ltd (0012) is going in alone through a subsidiary called "World City Culture Park Ltd", while Cheung Kong (Holdings) Ltd (CKH, 0001) and Sun Hung Kai Properties Ltd (SHKP, 0016) have teamed up in a rare joint venture called "Dynamic Star International Ltd". The third contender is "Sunny Development Ltd", a 4-way joint venture between The Wharf (Holdings) Ltd (0004), Sino Land Co Ltd (0083), K. Wah International Holdings Ltd (0173) and Chinese Estates Holdings Ltd (0127), which proposes a mixture of canopies and trees which again may be ruled as non-conforming.
The CKH/SHKP venture is tipped to win, not least because SHKP sponsored the Norman Foster design team that won the Concept Plan Competition in the first place. The design, which was adopted by Government, features a gravity-defying roof which rises slowly from the East to West and should ensure that there is no high-rise element in front of the buildings in Union Square, the 13.5 hectare MTR project surrounding Kowloon station where Sun Hung Kai just happens to be developing Packages 3, 5, 6 and 7.
After passing through a Government "Proposals Evaluation Committee" and various other steps (including public exhibition) aimed at giving the appearance of propriety, Hong Kong's Chief Executive, whose decision will be final, will choose the winner. The subjective assessment leaves it open to Government to choose whoever they want to win the project.
© Webb-site.com, 2004