Hong Kong Billionaire Steps in to Revive Struggling
Hotel Project in Shanghai's Historic District
More than a year after a twin tower hotel
project here got snagged on a web of problems more complex than its iconic,
honeycombed exterior, construction is finally about to restart.
The 30-floor project was designed as the
gateway to Xintiandi, a faux-historic section of central Shanghai that
boasts some of China's priciest real estate and is as popular with tourists
as the riverside Bund. But since construction mysteriously stopped in mid
2008 just as the global financial crisis started to unfold, the off-white
towers have looked more like question marks about Shanghai's ability to
sustain the heady pace of development that has marked its recent years.
The work stoppage coincided almost
exactly with the global financial meltdown and sparked talk in Shanghai
real-estate circles that Mr. Leo was rethinking his massive financial
commitment. Well known until then for cruising through town in his Bentley,
Mr. Leo appeared to drop out of sight.
In fact, money was never Mr. Leo's problem, according to people close to
him. They cited as evidence his big stake in one of the U.S.'s largest and
most successful private businesses, SHI International Corp., a major New
Jersey software distributor he founded.
Instead, these people said, Mr. Leo
merely wanted a fair deal in Shanghai.
A person who spoke recently with Mr. Leo
about his decision to leave the project repeated that view this week. But
Mr. Leo himself didn't respond to requests for comment.
A publicly available U.S. tax filing by
Mr. Leo's charitable foundation suggests he still had deep pockets in 2008.
The Leo KoGuan Foundation, already one of the largest single contributors to
Chinese universitiesósome have named their law schools after himóboosted
its giving, the filing shows.
That year, the foundation directed $1.15
million to Shanghai's Fudan University, $1 million to Shanghai Jiao Tong
University and more than $1.4 million to Peking University in the Chinese
capital, funding the gifts in part by selling shares in China Mobile Ltd.
and China Unicom (Hong Kong) Ltd.
For go-go Shanghai, completion of the
tower project would erase skyline blight.
buildings, skeletal with off-white exterior membranes and dark inside,
appear to lurk over the entrance of the otherwise lively Xintiandi
neighborhood. Over the past year, people familiar with the matter say,
Shanghai's government pressed the parties to reconcile or find a third-party
buyer; officials were apparently concerned that visitors to this
image-conscious city might get a bad impression during an upcoming World
This week's statement said Mr. Lo's
privately owned Shui On Group, which will own all shares in the project and
was already responsible for construction, will restart work immediately and
complete it before the Expo opens in May.
All along, two hotel management companies
have remained publicly committed to operating five-star properties on the
site, including one to be managed by Dubai's Jumeirah LLC. A company Web
site shows it will feature a wedding-cake-shaped glass enclosure for
parties. Another hotel, under the Hilton Hotels Corp. brand Conrad, promises
a design that pays homage to China's Han Dynasty.
- 2010 January 8 WALL
Property developer Shui On Land aims to accelerate its property sales and
will consider spinning-off its commercial property assets to help fund the
development of its large landbank in the mainland, its chairman said.
The China-focused luxury housing and commercial property developer
changed its investment strategy after it found it could not roll over a
US$375 million bond during the 2008 global financial crisis, chairman
Vincent Lo said.
'Banks wouldn't do any business during the financial crisis - it was the
most difficult time for me during my 38 years in business,' Mr Lo told
Reuters at Shui On's headquarters in Hong Kong's Wanchai business district.
'After the financial crisis, we knew that we couldn't rely (too much) on
external funding and made up our mind to accelerate sales and construction.'
Shui On Land, one of the first Hong Kong-based companies to invest in
China's property market in the 1980s, has a land bank of 13 million square
metres in the mainland, of which half is for retail and office purposes.
'Now we have 5-6 million square metres of commercial land bank that needs a
lot of money to develop,' Mr Lo noted.
Shui On Land is considering spinning off its retail and office assets as
a separately listed company that could self-finance its projects in the
market, he said, but added that the company does not yet have specific plans
for a spin-off.
Investment property accounts for nearly half of the company's total net
asset value of HK$46.7 billion (S$8.4 billion), according to a September
estimate by Macquarie Research.
Competing with companies such as China Overseas Land and Shimao Property,
Shui On Land plans to lift annual contract sales by five times to one
million square metres by 2012 from about 200,000 square metres this year.
That should grow at 20-30 per cent annually thereafter, Mr Lo added.
Mr Lo launched his business with a HK$100,000 loan from his father in
1971. In mainland China, he is best known as the developer of the iconic
Shanghai Xintiandi, which means 'New Heaven and Earth' in Chinese, a
shopping, office and residential complex that integrates local culture and
history with modern living elements.
'I'm proud that I have been able to assist in preserving the Shikumen
buildings in Shanghai, which are unique to Shanghai,' Mr Lo said, referring
to the traditional 'stone gate' architecture of the neighbourhood that
houses the Xintiandi complex. 'That set a trend on preservation.' Shui On
has replicated the approach in other Chinese cities.
Robust demand for luxury properties boosted Shui On's 2009 contract sales
to about 6 billion yuan (S$1.2 billion), up 64 per cent from 3.65 billion
yuan last year, but sales and delivery are expected to slow in 2010 due to
an uneven construction schedule.
Property firms often pre-sell housing units when projects are under
construction but can only book revenues once the developments are completed
and ready to be delivered.
'We don't have that many properties to sell next year so there will be a
gap. But we have other plans and hope it will not affect our earnings,' Mr
Shui On Land is in preliminary talks to sell retail and commercial blocks
to insurance companies. 'I will not sell Xintiandi or Corporate Avenue but
may consider selling others as we will continue to build more,' he said.
-- 2009 December 15 Reuters
Shui On Land, the mainland
property developer controlled by Hong Kong tycoon Vincent Lo, hired HSBC,
Deutsche Bank, and JPMorgan to arrange an initial public offering in the
first half of next year that could be worth as much as US$1.2 billion
(HK$9.36 billion), people familiar with the situation said.
The IPO is expected to be delayed until after Bank
of China completes its initial share sale, a megadeal expected to take place
in the first quarter.
That sale, which could total between US$8 billion
and US$10 billion, will set a record, and Shui On's bankers do not want to
compete head-on against it, since both will target the same group of
international institutional investors.
Bank of China, the country's second-biggest
lender, has chosen Goldman Sachs, UBS and BOC International to sponsor its
sale, sources said.
Though dwarfed by the BOC transaction, the Shui On
sale is still expected to be one of the larger IPOs next year in Hong Kong.
The company, perhaps best-known for its
developments in Shanghai, has yet to file an application to list with the
Hong Kong stock exchange, though it still expects the deal will be completed
by the end of June.
The offering is slated to raise at least US$1
billion, though that figure will be raised if demand warrants.
Proceeds from the offering will be mainly used to
finance property projects in Chongqing and Wuhan, one source said.
Shui On Land, which is 20 percent owned by Hong
Kong-listed Shui On Construction and
has development rights to build 6.6 million square meters of residential and
Its projects include the Rainbow City in Shanghai,
Taipingqiao Redevelopment Project, Shanghai Xintiandi, Corporate Avenue and
Lakeville, Xihu Tiandi in Hangzhou, Chongqing Project and Chuangzhi Tiandi
in Shanghai's Yangpu district.
With the mainland economy growing strongly, demand
for new construction remains strong despite government efforts to cool the
property market. That growth has attracted outside investors.
"The proposed offering of Shui On Land would
receive a hot response given the strong demand of recent IPOs of Prosperity
REIT, GZI REIT and Agile Property," said Patrick Chow, China property
analyst at Tai Fook Securities.
The chief assets of GZI and Agile are mainland
developments while Prosperity is Hong Kong-based.
Chow reckons that Shui On Land's shares will be
priced 20 percent to 30 percent below its net asset value, a fairly typical
discount for mainland property companies. Agile's recent IPO, for example,
was sold at a 35 percent discount to its NAV.
"Shui On Land has rolled out several
successful property development projects in China such as Shanghai Xintiandi
... [and] the company will apply the same development model at other sites
in Shanghai, Wuhan and Chongqing," Chow said. "This good track
record makes Shui On Land an attractive IPO investment."
Lo may also be able to fetch a better price for
his mainland property assets by segregating them off from his other
interests in construction, cement, and venture capital. Investors typically
find highly focused companies easier to value - and thus more attractive.
Both the precise mix of properties that will be
included in the IPO, and the value investors will place upon them, will
hinge in large measure on whether the mainland property market cools
significantly in coming months in response to repeated government efforts to
head off a speculative bubble. - by Wong Ka-chun and Lee Yuk-kei
STANDARD 20 Dec 2005
Hong Kong's Mr. Shanghai
Meet Vincent Lo, a Hong
Kong tycoon helping to shape Shanghai. He courted the city, built
connections and grabbed the city's biggest development opportunity. Now, can
he make his projects pay off?
The lavish Shui On clubhouse is one
of the toughest tickets in Shanghai. Last October, Russian President
Vladimir Putin took over the three-storey 1930s-style venue for a family
dinner. Another evening, Singapore Prime Minister Goh Chok Tong managed to
With 18 heads of state in Shanghai for
the Asia-Pacific Economic Cooperation forum that week, Shui On Group
Chairman Vincent Lo found himself saddled with the delicate task of turning
back world leaders. "Another head of state wanted to come" on
Putin's evening, Lo smiles. "But unfortunately it was reserved."
Little wonder. The clubhouse is in the
heart of Shanghai's top-profile restaurant and nightlife area--the Xintiandi
district that Lo built at a cost of $170 million over the past three years.
Designed along the lines of the city's characteristic shikumen row houses,
the clubhouse has many classic details of colonial-era Shanghai: steep
stairways, polished, dark wooden trim, slow-rotating ceiling fans and
well-stocked bars. Out front is a big "Private" sign with the logo
of Xintiandi, a two-hectare complex where up-market restaurants inhabit
renovated traditional brick buildings laid out by Benjamin Thompson
Associates, the designers who helped restore Boston's historic Faneuil Hall.
Lo, a dapper, 54-year-old Hong Kong
developer, owns 97% of Xintiandi, which sits just one block from some of
Shanghai's most prestigious office buildings. More importantly, he also
controls the rights to 52 hectares of land around it, which he plans to
transform into luxury townhouses, high-rise apartments, expensive offices
and two prime hotels.
It's a project worthy of Shanghai's
ambitions. And the tale of how Lo managed to get it is an instructive one.
For nearly two decades, he's been doing spadework in Shanghai--investing in
the city early, building connections, heading joint-development commissions,
partnering with Communist Party bodies. The process of courtship is one that
many Hong Kong tycoons have followed. It's not at all unusual these days for
big Hong Kong business groups to troop around on high-level delegations to
the mainland. They'll donate some money, make high-profile investments, talk
about their patriotism, and cosy up--sometimes financially--with officials
eager to develop local economies.
But few have followed the terms of
engagement as well, or as long, or as persistently, as Lo. He's not the
biggest Hong Kong developer in China, or even probably in Shanghai. But this
is a big reason why he's managed to get the rights to one of the most prime
pieces of Shanghai real estate. And also why he was entrusted to build an
entertainment complex--with a Starbucks outlet, fashion shops, and a Spanish
tapas restaurant called Che, celebrating the revolutionary chic of Che
Guevara--all on land surrounding the hall where the Chinese Communist Party
held its first meeting in 1921. "If it's not for that relationship, I
don't think the Shanghai government will entrust this project to me,"
Lo says. "I guess they know me as a person, and they know my
Putin and Goh probably aren't the most
important patrons at Lo's clubhouse. Those would be the Shanghai municipal
officials who drop in for dinners, drinks and evenings of entertaining
guests. While doing business in China often requires financial
considerations and other incentives to win concessions from officials, there
is no evidence Lo has resorted to this tactic.
When he first began investing in Shanghai
in 1984, Lo was a mid-sized Hong Kong developer whose primary business was
making cement and building flats for the colonial government. Today, he
looks prescient for having focused on Shanghai. While several of Hong Kong's
mighty developers struggle through the worst property slump in years, Lo's
private group, Shui On Holdings, has more than half its assets outside Hong
The outlook for developers firmly set in
Hong Kong, such as Lee Shau-kee's Henderson Land, has soured along with the
territory's economy. In May, Standard & Poor's lowered the ratings or
outlooks for most of its top developers, and even put even Li Ka-shing's
Cheung Kong on watch for a potential downgrade. Lo's own listed firm, Shui
On Construction and Materials, which has most of his Hong Kong assets and a
few Chinese ones but not Xintiandi, saw its net profit tumble 80% to HK$104
million ($14 million) in the year ended March 31.
By contrast, Xintiandi--which means
"New Heaven and Earth"--is turning a moderate profit, and Lo is
betting its success will make all the surrounding land he holds more
valuable as he clears old neighbourhoods to build office towers and high-end
residences. Initial indications for his yet-to-be-built townhouses are that
they could command up to $3,500 per square metre, making them the most
expensive housing complex in Shanghai. Nearby, Lo's big Shanghai office
tower, Shui On Plaza, is full. And because it was completed in 1997 near the
peak of the city's last property boom, it commands rents higher than
All this has Lo crowing at his good
fortune. "I've always insisted that property prices cannot be divorced
from economic growth," he says. "Hong Kong has had great economic
growth in the past few decades and so our property prices shot through the
roof--and also because of property policies of the government. But I never
believed we could continue on that basis, and so I guess I was proven
But it won't be clear for some time
whether the ending to Lo's Shanghai story is a happy one. Lo has 52 hectares
to develop, and many analysts wonder whether he has pockets deep enough. If
Shanghai's residential or office markets stumble, others may be loath to
become partners with him unless they get very favourable terms.
Though both high-end residences and prime
office space have proved bouyant for over a year, Shanghai's last property
cycle was exceedingly rough. Rental prices for prime office space in some
Shanghai neighbourhoods fell nearly 75% between 1996 and 1999. The market is
larger and deeper now, and nobody predicts such a sharp fall again. But Lo
can still expect some gut-wrenching twists and turns as he builds over the
Shanghai's high-end office market,
however, now looks reasonably healthy. Rents are still well below the
heights of the mid-1990s, and DTZ Debenham Tie Leung, a property
consultancy, figures vacancy rates in Grade A office buildings were just 12%
at the end of June.
The market for high-end residences isn't
so healthy, with many analysts saying the sector looks much more frothy.
Prices for luxury residences in Shanghai have risen on the back of big
demand from Taiwanese and Hong Kong buyers. But that's clearly a less stable
source of demand than the local market, which still tends to be more
demanding, and lower-end, than outsiders. "You don't want to build too
far ahead of where the local buyers are, because that's the bread and
butter," says Sam Crispin, a property consultant in Shanghai.
ALWAYS BUILD GUANXI
Back in 1984, when Lo first started putting money into Shanghai, most Hong
Kongers were firmly focused on the home market--or, in many cases, on
getting foreign passports. His first joint-venture partner was the Shanghai
Communist Youth League, for which he helped build the three-star City Hotel.
Several officials who were then members of the youth league have made their
way up through the municipal government ranks. One, Han Zheng, is now a
vice-mayor, having been head of the Luwan district, where Xintiandi is
located. Other youth league veterans are high up in the local party.
For the better part of a decade, Lo built
his relationships and made some small investments. In Hong Kong, meanwhile,
other developers were surging past. "In the early 90s, I wanted to
increase my investment in the property side in Hong Kong," Lo says.
"But every time I went to the auctions bidding for a piece of land, I
was often outbid."
Lo instead became a trailblazer in
Shanghai. In 1994, he started building the 26-storey Shui On Plaza, and
managed to rent it out in early 1997, not long past the peak of Shanghai's
office-rental market. Also in 1994, he became co-chair of the first
Shanghai-Hong Kong Economic Conference, a joint enterprise in which Hong
Kong businessmen tried to scope out investment possibilities. His
co-chairman was to become a key backer: then-Shanghai Mayor Xu Kuangdi.
Xu was a notably international,
development-friendly figure who studied in London, worked in Sweden in the
1980s, and was thoroughly at ease with foreign investors. As Lo describes
it, Shui On was just a small player under previous Shanghai mayors, such as
Jiang Zemin and Zhu Rongji. "I would get to meet the mayor on social
occasions, attend a banquet together or something like that. But after Mayor
Xu Kuangdi took over, we started to work very, very closely together."
Lo became involved in city planning--an
enviable position for a developer. "I got to know more about the
policies of Shanghai," he says. "And working closely with the
leadership offered me the opportunity to understand their thinking and their
plans. And that really helped." Xu, Lo says, was instrumental in
convincing Beijing leaders to accept the Xintiandi project, which was
sensitive because it surrounds the site of the party's first meeting hall.
Xu, widely respected for his management
of Shanghai, was abruptly made party secretary of the Chinese Academy of
Engineering in Beijing last December amid a bout of political in-fighting.
Lo, who still visits Xu regularly, predicts there will likely be something
else for the former mayor. "I visited with him not too long ago, and
I'm sure there are other plans for him, because he is very capable and
really a great guy," he says.
Back in Shanghai, Lo kept building
connections through the 1990s. In 1998, with Chinese leaders growing
increasingly concerned with promoting development in poorer western regions,
Lo became the founding chairman of a body called the Shanghai-Hong Kong
Council for the Promotion and Development of the Yangtze. This brought Hong
Kong businessmen together with provincial and municipal officials from areas
along the Yangtze River from Shanghai to Sichuan. For high-end property
developers, that's not too promising a prospect. But if you're in the cement
business (as Lo is) and you have cement plants in Chongqing and Guizhou (as
Lo does), it's a very good body to be part of.
Politics? Sure. Lo travels overseas
regularly, promoting investments in underdeveloped Chinese provinces. He is
a member of the Ninth National Committee of the Chinese People's Political
Consultative Congress, and his name even pops up in speculation of people
who might ultimately succeed Tung Chee-hwa as Hong Kong's chief executive.
Last June, Lo even had the chance to guide party General Secretary Jiang
Zemin around Xintiandi.
Lo has planted his flag on the Xintiandi
project, which will reshape central Shanghai. From the top floor of Shui On
Plaza, you get a sense of the giddy ambitions of the city's development
world. In the middle of an airy showroom stands a model of what Xintiandi
will ultimately contain--the renovated gray-brick buildings in the
foreground, fields of green surrounding townhouses in the back, tennis
courts, new skyscrapers and a 68-storey behemoth of an office tower.
A visitor looks at the model, and then
looks out of the windows and sees the red-tile roofs of traditional houses
covering much of the area. They don't have long. Beside the lake, gray
cement foundations have been poured for the first of the office towers. Some
500 metres away, the first residential high rises loom, one-third finished,
draped in green construction mesh.
Those parts are the payoff for Lo.
Xintiandi itself so far isn't a huge moneymaker. Having cost 1.4 billion
renminbi ($170 million) to build--less than 30% from bank loans, Lo
says--it's expected to take in only around 100 million renminbi a year. The
large lake that Lo built on cleared land earns nothing. The existing
district is supposed to be a magnet to increase the value of the surrounding
areas. "What they're doing is actually quite refreshing for a developer
in Shanghai," says one local property analyst. "They're taking a
In the evenings, Xintiandi's expensive
restaurants and bars are often crowded with revellers. Shui On has just
completed a second city block's worth of buildings aimed at a more local
market, with cheaper restaurants. But will it have legs? Shanghainese, who
flocked to the area at first, are starting to cool on it. Nell Shi, a
fashionable 27-year-old who works for a multinational firm nearby, says she
visited often in the first month, intrigued by the mix of historic and
high-end. But now there are too many tourists. "I don't go there so
much," she says. "It's like being an animal in a zoo."
In the end, the project's future
will depend on whether Shanghai's boom lives on. But Lo is already starting
to work connections elsewhere. He says that he's been invited to seven
cities to talk about Xintiandi-like commercial developments, and has begun
working on one in Hangzhou, a booming city of 1.7 million in Zhejiang
province just south of Shanghai. Is he moving too fast? "We will be
very, very cautious, because not every city will have this kind of
environment," he says. "But I would offer my advice, and we would
do something in the future."
- By Ben Dolven/SHANGHAI Far
East Economic Review
August 15, 2002
Businessman of the Year 2002
Property developer Vincent Lo Hong-shui,
chairman of the Shui On Group, was named DHL/SCMP Businessman of the Year
Mr Lo, whose Xintiandi development in
Shanghai won plaudits worldwide, has been a trailblazing investor in
He said he was delighted with his win
and, with difficult economic times ahead, dedicated the award to Shui On's
"The current economic situation in
Hong Kong is very difficult and the short-term scenario is not promising. We
will have to cut costs to stay competitive," Mr Lo said.
Last week, Shui On reported a 72 per cent
drop in net profits for the six months to September 30.
It is not the first time Mr Lo has faced
the daunting task of steering Hong Kong-listed Shui On - which he founded 30
years ago - through a downturn.
He said last night he had learned the
hard way the importance of keeping Shui On's focus on property, construction
materials and construction.
"In the 1980s, with the downturn in
the property and construction markets, Shui On diversified into many other
different businesses such as hotels, restaurants, photo-finishing,
computers, and we really made a mess of all the businesses at the
time," he said.
However, Hong Kong's property crash in
the 1980s also prompted him to explore opportunities in the mainland.
South China Morning Post business editor
Grant Clelland said: "Mr Lo's achievement demonstrates the best
qualities of Hong Kong's entrepreneurial spirit."
Po Chung, co-founder and honorary
chairman of Asia-Pacific DHL, said: "His company entered the China
property market in the late 80s, making the group one of the first Hong Kong
companies to do so, and this move set an example which many firms are now
trying to emulate."
This summer, Shui On finished developing
the Xintiandi district in Shanghai, which features restored homes with
Shikumen or Victorian-era stone gates. World-famous designers have flocked
to Xintiandi to open boutiques, even though Shui On did not advertise.
While many Hong Kong people worry about
the threat posed by Shanghai's rapid growth as a financial centre, Mr Lo
says the SAR should think about its strengths.
"People in Hong Kong are
wasting time crying when Shanghai will overtake us. Actually, if Shanghai is
going to overtake Hong Kong, we wouldn't be able to stop them. Hong Kong
should think how it can develop and exploit its advantages."
- South China Morning Post