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  Materials, has development rights to build 6.6 million square meters of residential and commercial space.

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   THE STANDARD    20 Dec 2005

• HK's Mr. Shanghai
• HK's Business Man of the Year

• HK : Murray House wins Architectural Award 

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 reserve it.

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 companies."

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 Kong.

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 neighbouring buildings.

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 right."

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 coming years.

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 long-term view."

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 

Property developer Vincent Lo Hong-shui, chairman of the Shui On Group, was named DHL/SCMP Businessman of the Year last night.

Mr Lo, whose Xintiandi development in Shanghai won plaudits worldwide, has been a trailblazing investor in mainland projects.

He said he was delighted with his win and, with difficult economic times ahead, dedicated the award to Shui On's workforce.

"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