Property

Li’s biggest property sale yet

Mainland Chinese buying up of Hong Kong’s CBD continues apace

The-Center-w

Sky-high building goes for sky-high price: the Centre in Hong Kong

Like most of Hong Kong’s billionaires, Li Ka-shing is a believer in feng shui. He reportedly rescheduled his mother’s funeral after a feng shui expert suggested a more appropriate time and he consulted with feng shui masters in the design of the Cheung Kong Centre, a prized development in the middle of Hong Kong’s business district.

The building is nestled between the Bank of China Tower (which has triangular angles that look like the blades of a knife) and the HSBC headquarters (with two cannon-shaped protrusions on top of its roof). Cheung Kong felt it needed to deflect the bad feng shui and a master of the traditional art suggested that the best way to fend off the negative energy was a square design and reflective glass that shielded against the knife and cannon.

Aside from the protective layer, feng shui masters say the Cheung Kong Centre’s location is ideal for “accumulating wealth,” says Economic Weekly.

And perhaps the flow of good fortune is one reason why Li has enjoyed so much success offloading his other prized property assets in recent years. Just last week it was announced that the billionaire’s property firm CK Asset had agreed to sell its stake in The Centre, another 73-storey skyscraper in Hong Kong’s central business district. The price is $5.15 billion, the highest price paid anywhere in the world for a single building. Interestingly, the second-largest transaction for a single building was also from Li: he sold the Century Link complex in Shanghai last year to Singapore-based ARA Asset Management for almost $3 billion.

CK Asset says the buyer in this month’s deal is a company called C.H.M.T. Peaceful Development Asia Property Limited, which was set up specifically for the acquisition. Its largest shareholder, with a 55% stake, is the Hong Kong unit of China Energy Reserve and Chemicals Group (CERCG), a Beijing-based conglomerate that specialises in the oil and gas industry.

“We are responding to China’s call to explore the overseas markets. Our wish is to own a few floors in some of Hong Kong’s hallmark office buildings and maybe put our logo on the top,” Zhang Wenbin, a CERCG executive, told the Wall Street Journal. “The price isn’t high.”

Judging by its ownership structure, CERCG is no ordinary buyer. NetEase Finance has discovered from corporate filings that CERCG’s two largest shareholders are China Hualian International Trade and an obscure Beijing-based oil energy company. China Hualian is a state-owned enterprise controlled by the International Department of the Central Committee of the Chinese Communist Party, which represents the Communist Party in overseas affairs.

The background of the company chairman is equally mysterious. Chen Yihe, 54, started his career as a civil servant in Inner Mongolia. Later he was transferred to state-owned PetroChina. He currently owns or holds stakes in as many as eight energy-related businesses in China. NetEase says Chen was at one point closely related to Li Xinhua, the general manager of CNPC (the parent of PetroChina), who has since been expelled from the Party.

“Whether it is true or not, the little-known Inner Mongolian oil trader that has struck a record deal with Li Ka-shing deserves more attention,” the portal concludes.

“No matter what CERCG’s or its president’s background really is, one thing is for sure: the specific transaction must have been approved or even supported by the Chinese government, because the mainland Chinese enterprises involved were able to accumulate such a large amount of capital despite tightening restrictions on overseas investments set by Beijing since August,” says The Diplomat.

So who else is in the consortium? The remaining 45% stake is shared among four businessmen in Hong Kong. It is believed that Chan Ping-chi, an investor who made his fortune as the world’s largest producer of cassette tapes has a stake. The leading operator of Hong Kong minibuses Ma Ah-mok is also in the consortium, says Hong Kong Economic Times.

Market commentators believe that once the deal closes, the minority investors will offload their stake by strata (i.e. sell ownership of individual floors; a practice not usually favoured in Hong Kong where real estate giants tend to own whole office buildings or malls so as to control the tenant mix and management). Commercial property agents say they have already been instructed to look for potential buyers for space, says Oriental Daily.

Investment from mainland China in Hong Kong’s property market shows little sign of slowing. Over in Kowloon, another mainland company LVGEM has announced that it will spend a total of HK$9 billion buying an office building from Wheelock with a view of Victoria Harbour, setting the highest price per square foot for commercial buildings in the Kwun Tong district.

“This is a good price for the seller,” says Dorothy Chow from Jones Lang LaSalle. “This transaction is a historical high in that area.”

Over the years, more of Hong Kong’s prime business districts have been taken over by Chinese companies looking for a presence in the city. In 2012, Agricultural Bank of China bought a 28-storey office in Central, the city’s financial district, for $629 million. In 2015, developer Evergrande paid a then-record HK$12.5 billion for the 26-storey Mass Mutual Tower in Wan Chai. That year too, insurance giant China Life bought Wheelock’s One Harbour Gate complex for HK$5.86 billion.

Mainland firms have also taken over the rental market. Agents say that about half of new leasing in Central came from Chinese companies in the first half this year. Rents for prime offices in the same district are already the most expensive in the world at $269 a square foot – 76% higher than Midtown in Manhattan, according to CBRE.

So what’s the significance behind The Centre sale? The deal continues Li’s retreat from assets in mainland China and Hong Kong over recent years. In the past five years or so, the billionaire has offloaded as much as HK$250 billion worth of assets in Hong Kong and China, says QDaily, a Chinese news portal.

Others say that the sale of the property proves that Li, who will turn 90 next year, is choosing to focus on the international energy and infrastructure sector instead. This April, he wrapped up his biggest overseas deal on record, the $5.6 billion takeover of Australian power provider Duet Group. But he’s been much quieter in the property sector. Up to October last year, Li’s companies had sold seven large property projects on the mainland with a combined value of Rmb43.4 billion and they have hardly invested in any new projects since 2012, says the South China Morning Post.

“Li Ka-shing may be old but he is certainly not an old man at heart. He has already successfully invested in many new industries like electric vehicles and even in eSports. Perhaps the sale of property is not ‘Li Ka-shing fleeing the market’ but it is merely a way of strategically deploying his capital into emerging and sustainable industries,” suggested Finet, a Hong Kong-based financial news portal.


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