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1. Wheelock profit slumps by 88pc

2. Deep Bay award hit by spat

3. Amid failed projects, housing chief backs pre-sale scheme

4. Property fiasco sends shockwaves through market

5. Wheelock's earnings slide on the back of property provisions

6. Freeze on land sales 'unhealthy'

1. Wheelock profit slumps by 88pc
Jonathan Tam, The Standard 19 June 2003

Profit of Wheelock, a 146-year-old investment company, slumped 88 per cent for the year to March as its property-related provisions almost doubled to HK$2.4 billion amid the sluggish market.

Net profit for the period plunged to HK$64 million, or 3.1 cents a share, from HK$546 million, or 26.9 cents, a year ago despite sales leaping up by 38 per cent to HK$9.87 billion from HK$7.16 billion on more apartment sales.

Stripping out the provisions, net profit rose 12.3 per cent to HK$1.63 billion from HK$1.45 billion.

A final dividend of five cents a share was proposed, the same as a year earlier.

``The company's overall business has been affected by the weak economy,'' KGI Securities director Ben Kwong said.

``Since it has made such large provisions, it's unlikely to make any more significantly this year unless the property market slumped again.'' Property prices have fallen by 60 per cent since the financial crisis in 1998, forcing developers to make provisions or re-evaluate their investments, which often included land that was bought at a premium price.

Wheelock said it made a HK$1.77 billion provision for the decline in value of its developing properties and another HK$662.8 million for the deficits incurred from its investment properties portfolio. That was a 94.5 per cent increase from HK$1.25 billion it made a year ago.

Excluding those made by associates, provisions were HK$1.57 billion, up from HK$905 million a year earlier.

Provisions included HK$706.2 million for its Sorrento residential project; HK$540.1 million for Bellagio; HK$354.6 million for Wheelock Place, built by unit Marco Polo Development; and HK$627 million for properties held under the Realty Development group by another unit, New Asia Realty group.

Property development income fell by HK$483.3 million to HK$562.8 million even as sales rose to HK$7.4 billion from HK$4.5 billion. Property investment climbed HK$11.2 million to HK$253 million and a HK$192.6 million loss was booked on the sale of some non-trading securities.

The main profit driver was 48 per cent-owned Wharf Holdings, which ran telecom, media, property and logistics units and contributed HK$1.4 billion to Wheelock before provisions.

Losses incurred on retail operations narrowed to HK$49.8 million from HK$80.3 million. Wheelock sold its fully owned high-end department store Lane Crawford, a 52 per cent stake in upmarket women fashion retailer Joyce and 39 per cent in supermarket chain City Super during the financial year, reaping a net gain of HK$31.5 million.

``Future income growth will probably come from Wharf and the lower interest expenses as a result of decreased debt,'' South China Research analyst Jeff Yau said.

2. Deep Bay award hit by spat
Keith Wallis, The Standard 19 June 2003

Highways officials will tomorrow kick off the first stage of a new highway to the mainland when they sign HK$2.9 billion worth of contracts for the Deep Bay link.

The link will form the main road access between Tuen Mun Road and Yuen Long Highway to the Shenzhen western bridge between Ngau Hom Shek and Shekou.

But a row has broken out over the award of one of the deals because one of the losing contracting groups said it was unfairly disqualified even though it offered the cheapest price.

The group, a joint venture between Balfour Beatty, Dragages and China Rail Construction Corporation, has already complained to the government's Central Tender Board and the Highways Department, questioning the decision.

It is also mulling over further action after its bid for the southern section of the Deep Bay link was disregarded by highways officials.

The team submitted the lowest prices for both the southern and northern sections.

It offered just under HK$1.19 billion for the southern section and HK$1.56 billion for the northern section.
This was considerably below the government's official estimate of HK$4.6 billion to build the entire 5.4-kilometre-long dual three-lane highway.

The prices were also cheaper than those offered by the eventual winning contractors, China State Construction Engineering Corporation, which tendered a bid of HK$1.2 billion for the southern section, and Gammon Skanska, which bid HK$1.7 billion for the northern segment.

The Balfour Beatty-Dragages group said it accepted the decision to award the northern contract to Gammon Skanska.

But the group questioned the government's decision to award the northern contract to China State Construction.

It said that one of the technical qualifications for the project was to have viaduct-building experience worth more than HK$300 million gained in the last five years.

To qualify, it used the experience of French partner Dragages which built the second Rambler Channel road bridge in 1998.

Dragages' completion certificate for the Rambler Channel bridge expired on April 27, just two days after bids were initially due in on April 25.

But the Highways Department gave contractors a week's extension until May 2 because the department's consulting engineer, Ove Arup & Partners, kept issuing additional design data. By the time tenders were submitted, the completion certificate had expired.

It was this technical issue the department used to disqualify the group, although Dragages' certified works certificate is still current and does not expire until September 30.

One source said: ``The group considers it very harsh. They didn't expect addendum to be issued that extended the tender deadline. Consequently, they expected somebody to make a realistic judgment.''

China State Construction's viaduct construction experience is believed to be centred on a project it won for the Kowloon-Canton Railway Corporation in Ma On Shan.

But the firm was banned for six months after part of the structure collapsed.

Officials figures show that China State Construction has won about 20 per cent of all government construction contracts that have been awarded since January 2000, considerably more than any other contractor.

The firm secured nearly HK$13 billion of the HK$68 billion worth of contracts awarded between January 2000 and the end of this March.

Work on the northern segment of the Deep Bay link calls for the construction of four kilometres of dual three-lane highway together with associated slip roads, built mostly on viaduct.

The scheme also comprises construction of the Ha Tsuen interchange, a police weigh-station and a helipad at Ha Tsuen, plus ancillary works.

Construction of the southern section involves the construction of about 200 metres of highway and associated elevated slip roads connecting the Yuen Long Highway. Work also include the widening of about two kilometres of Yuen Long Highway between the Lam Tei interchange and Tan Kwai Tsuen.

Both sections are to be completed by December 2005 when the Shenzhen western bridge is due to open to traffic.

3. Amid failed projects, housing chief backs pre-sale scheme
CHAN SIU-SIN, SCMP 19 June 2003

The recent failure of two housing projects should not be blamed on the government's pre-sale "consent" system, Secretary for Housing, Planning and Lands Michael Suen Ming-yeung said yesterday.

"These incidents were a surprise, but were not a result of the system itself. This happened because someone did something they should not have, and police will look into the matter," Mr Suen told a Legislative Council panel.

The consent system, which has been in place for 42 years, relied on the ethics of the professionals involved in property transactions, he said. It would be continued despite the two recent scandals involving the Villa Pinada and Aegean developments in Tuen Mun.

The 319-unit Villa Pinada, built by True Gold Investments and owned by locally listed Gold-Face Holdings, was placed under receivership on May 16 after it failed to repay about $200 million in syndicated loans to the Bank of China. Five days later, its sister project, the Aegean, hit trouble as its developer, Profit Nation Development, a Gold-Face subsidiary, was also placed under receivership.

Both were being developed under the consent scheme, whereby developers can sell flats before they are finished and use the proceeds to complete construction.

The scheme was introduced in 1961 after a series of scandals in the late 1950s, and was intended to ensure that property transactions were carefully monitored. Developers must register with the government, proceeds from pre-sales must be placed in special accounts that can only be used for construction of the project and a number of other strict criteria must be met.

In return, prospective pre-sale buyers were rewarded with lower purchase prices.

Legislator Albert Chan Wai-yip described the system as corrupted.

"If the system is healthy, then we would not have failed housing projects showing up," he said.

"You at least see an actual orange when you buy an orange; but in this case, flat owners were forced to take the flats even if the project failed."

Martin Chan Kwong-fai, an Aegean flat owner speaking at the meeting, said he felt like the government was being "cold and passive".

He said: "We were surprised, disappointed and shocked. And the government has not yet contacted us [to help settle the issue]."

In response, Mr Suen said: "Just because the government did not intervene does not mean the government does not care. We have to take the concerns of all parties into account."

In the meantime, he said, government has tightened scrutiny of developers of projects registered under the consent scheme.

The Lands Department has written to 44 already registered developments and 17 applicants asking them to provide updates on documents they submitted.

4. Property fiasco sends shockwaves through market
CHAN SIU-SIN, SCMP 19 June 2003

The financial collapse of Villa Pinada and the Aegean has shocked the local property market.

The Villa Pinada development, which was built by True Gold Investments and owned by locally listed Gold-Face Holdings, was put under receivership on May 16 after its developers failed to repay about $200 million in loans to the Bank of China.
On May 21, it was revealed that a sister project, the Aegean, was also in trouble. Its developer, Profit Nation Development, a Gold-Face subsidiary, was also placed under receivership.

On May 23, the receivers, Ernst & Young, promised 205 Villa Pinada buyers that they would not lose their properties in Tuen Mun so long as full payment was made or sufficient loans were secured.

On June 10, Ernst & Young said it would try to arrange early completion of the project and speed up the sale and purchase agreements with Aegean buyers.

However, an Aegean buyer, Martin Chan Kwong-fai, said most flat purchasers were at a loss over who was responsible for completing the project.

Villa Pinada buyer Florence Or said Ernst & Young told buyers yesterday that a syndicated loan would help finish the project. But they have yet to receive letters confirming their ownership.

5. Wheelock's earnings slide on the back of property provisions
KENNETH KO, SCMP 19 June 2003

Substantial provisions for property projects have caused Wheelock and Co's profit to plummet by 88.3 per cent to $64 million for the year to March 31.

The group made a $1.76 billion provision for property developments, mainly the loss-making Sorrento and Bellagio projects, and a provision of $662.8 million for its investment properties.

The listed flagship of chairman Peter Woo Kwong-ching said net profit before provision was $1.62 billion, an increase of 12.3 per cent year on year.

Analysts were not surprised by the sharp profit decline, saying huge property provisions had been expected because of the weakened property market.

BNP Paribas Peregrine head of regional property Adrian Ngan Wai-hung said the business performance was not too bad, excluding the provisions.

The main drivers behind the growth of profit before provision were a contribution from associate Wharf (Holdings) and lower finance costs, while Wheelock's fundamentals were sound and the stock was worth re-rating.

Wharf's net profit contribution to Wheelock, before its share of provisions for Sorrento and Bellagio, was $1.36 billion. Wheelock's borrowing costs fell to $254.8 million from $554.2 million previously.

South China Securities analyst Jeff Yau said Wheelock's financial position had been improving over the past few years with its continued debt reduction.

The ratio of net debt to shareholders' equity fell to 37.8 per cent from 49.7 per cent a year earlier.

At the end of March, the group's net debt was reduced by 33.2 per cent to $8.79 billion.The decrease in debt was caused by net cash generated mainly from property sales and cash inflow of $2.82 billion from the disposal of non-trading securities.

Wheelock will pay an unchanged final dividend of five cents a share, maintaining the full-year payout at 7.5 cents.

During the year, the group's turnover rose 37.7 per cent to $9.86 billion, mainly because property sales increased from $4.48 billion to $7.44 billion. At the end of March, more than 82 per cent of phase-one units in Sorrento and 37 per cent of phase-two units were sold, while 75 per cent of Bellagio phases one and two were sold.

Despite the lacklustre market conditions, the operating profit of its property investment division increased by $11.2 million to $253.1 million on improved occupancy.

The group realised a net gain of $31.5 million from the sale of its retail business portfolio, including Lane Crawford, Joyce and City Super, during the year.
The profit contribution from investments and other segments fell by $173.5 million to $38 million after including a $192.6 million loss on disposal of certain non-trading securities. At the end of March, Wheelock maintained a portfolio of long-term investments worth $753.2 million.

6. Freeze on land sales 'unhealthy'
KENNETH KO, SCMP 19 June 2003

Cheung Kong (Holdings) executive director Justin Chiu Kwok-hung yesterday expressed reservations about further land sales suspension amid renewed debate on the issue.

His view is at odds with Lui Che-woo, chairman of medium-sized developer K Wah International, who recently called for a further two-year suspension to help the property market.

The existing moratorium will end in December and the government is expected to resume land sales next year.

Mr Chiu said an across-the-board suspension of land sales would lead to an unhealthy development in the market.

He said the application list system was working well and allowed developers to take the initiative to buy land based on market conditions.

Land on the list is released for sale after developers apply and agree to pay a minimum price.

If all land sales were frozen, the market would be short of indicators, he said.

However, Mr Chiu said extending the permitted construction period for residential projects could help regulate supply and reduce market volatility.

Developers are urging the government to give them an additional year to complete projects.

Mr Chiu said the supply of flats was expected to fall in 2005 and 2006.

By allowing a longer construction period, developers could adjust their development schedule to ensure a more stable medium-term supply.

Meanwhile, Cheung Kong will announce today the selling price of the Cairnhill residential project in Tsuen Wan.

Senior sales manager Francis Wong said more than 60 units had been reserved by buyers.

He said people buying two or more parking spaces in the project could gain a discount of up to 9 per cent on the property price.

More property sales are in the pipeline. Sun Hung Kai Properties is about to launch its YoHo Town project in Yuen Long.

The group yesterday appointed Hang Seng Bank as the exclusive banking and mortgage service provider for buyers of the project.

Hang Lung Properties is also preparing to release its 98-unit Napa Valley in Tuen Mun in the short term.