Chinese Estates, under Hong Kong's fourth richest tycoon, says profit set to fall for a fifth year as company sells zero homes

By Cheryl Arcibal

/ SCMP |

March 19, 2020 11:30 AM SGT

Chinese Estates Holdings, controlled by the family of property tycoon Joseph Lau Luen-hung, said earnings are set to fall for a fifth straight year to the lowest in nine years. After selling one apartment unit in 2018 amid a cooling market, the group sold none in 2019 as home prices slumped.

The developer issued a warning late on Wednesday, saying earnings could drop by 17 to 27 per cent in the year ended December 31, 2019, from HK$1.01 billion (US$130 million) in 2018. That would be the least since it incurred a HK$8.9 billion loss in 2010, according to its financial reports. Revenue could drop by 31 to 41 per cent in 2019, it added.

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There was "no sale of trading properties during the year", the company said in its stock exchange filing. In 2018, it earned HK$183 million from the sale of a single home at its 55 Conduit Road luxury project in Mid-Levels, which also set a record price for a 135-sq ft car park at the time, according to company documents.

Without new home projects, Chinese Estates has since morphed into a property investment group under the chairmanship of his son after Lau handed over the reins amid reports of failing health. Lau, its former chief executive, is the fourth richest man in Hong Kong with a net worth of US$8.4 billion, according to Forbes.

One of its biggest bets has been the acquisition of shares and dollar-denominated junk bonds issued by China Evergrande, the mainland's third-largest builder and most-indebted developer by some yardsticks. They formed part of Chinese Estates's HK$48 billion of investment assets as of June 30, 2019.

This resulted in annual swings in mark-to-market values. Chinese Estates expects to record an unrealised loss of HK$1.6 billion based on changes in their fair values. China Evergrande's shares fell 7.9 per cent in 2019 and 13 per cent in 2018, while its US dollar-denominated bonds were relatively stable last year.

In late January exchange filing, Chinese Estates made an agreement with Chan Hoi Wan, Lau's wife, for her to buy up to HK$8 billion of debt investments from the company. The lot includes bonds issued by Evegrande, Sunac China, Kaisa Group, HSBC, Barclays and Deutsche Bank.

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Overall, its investments are expected to yield a net profit of HK$1.8 billion in 2019, versus a HK$711 million loss in 2018. The income was mainly attributable to HK$1 billion of "unrealised gain" from bond holdings.

Chinese Estates has a 10 per cent interest in the Grand Central in Kwun Tong, a project with four tower blocks or 2,000 residential units, according to its financial report. About 1,400 units were pre-sold as of end 2018. The project is set to be completed in 2021.

Chinese Estates said it did not receive any dividend income from China Evergrande in 2019, compared with HK$1.1 billion in 2018 when it held a 6.6 per cent equity stake.

Lau was convicted of bribery and money-laundering in Macau in 2014, but avoided a five-year jail term by not travelling there. In 2019, Lau filed a lawsuit " but later withdrew it " to challenge the Hong Kong government's proposed extradition bill that triggered the city's worst political crisis in decades and helped sink the economy.

On Wednesday, Chinese Estates fell 2 per cent in Hong Kong to HK$4.87, bringing this year's loss to 21 per cent.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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