Lai Sun Development

Lai Sun Development, commonly abbreviated as LSD, is a Hong Kong property development company established in 1987 by textile entrepreneur Lim Por-yen. It operates within the wider Lai Sun group, whose origins reach back to Lai Sun Garment, the textile company founded by Lim in 1947. Lai Sun Garment is the controlling shareholder of Lai Sun Development and remains an important part of the group's corporate structure. The company's business has included the development, ownership, redevelopment and operation of commercial and hotel properties. Its activities have been particularly associated with significant urban sites in Hong Kong, including the Furama site and the former Ritz-Carlton site in the Central business district. Through its hotels division, Lai Sun Development also held interests in hotel assets and operated properties before redevelopment or disposal. A defining episode in the company's history was its 1997 acquisition of Furama Hotel Enterprises. Lai Sun Development acquired a 45.42 percent stake for approximately HK$3.13 billion and subsequently made an offer for the remaining shares, bringing the intended total cost to about HK$6.893 billion. The transaction was made near the peak of the Hong Kong property market and was financed with substantial borrowing, including roughly HK$5 billion in bank loans and more than HK$2 billion in bonds. The Asian financial crisis soon placed severe pressure on property values and the company's balance sheet. Lai Sun Development's market value fell sharply, and the group entered a period of restructuring and asset sales. The Furama transaction was subsequently reworked. In 2000, Lai Sun Development announced the sale of a 65 percent interest in the Furama to a joint venture between Pidemco, a Temasek Holdings-controlled company, and AIG for HK$1.88 billion. Lai Sun continued operating the hotel under a lease arrangement while plans for redevelopment progressed. The Furama closed in November 2001 and was demolished the following month. Lai Sun later partnered with AIG and CapitaLand through Bayshore Development Group to create AIG Tower, a 39-storey commercial office project on the site. The ownership structure of that project was reported as 35 percent each for AIG and CapitaLand and 30 percent for Lai Sun Development. The group also pursued deleveraging through other disposals. In 2002, while debt remained above HK$6 billion, Lai Sun Development sold its 32.75 percent interest in Asia Television to the broadcaster's chief executive, Chan Wing-kee, for HK$360 million. The disposal reflected the broader effort to reduce financial leverage after the late-1990s crisis. Another major redevelopment involved the former Ritz-Carlton site. The plot was held through Diamond String, an entity majority-owned within the Lai Sun group. In 2007, China Construction Bank agreed to acquire a 40 percent interest in Diamond String for HK$1.37 billion, reducing Lai Sun Development's stake to 60 percent. The partners planned to replace the hotel with a commercial office tower, with completion targeted for 2011 and partial occupation by China Construction Bank. The Ritz-Carlton closed on 1 January 2008 as preparations for redevelopment continued. Lai Sun Development has been led by Peter Lam, the founder's son, who has also been associated with Media Asia Entertainment Group. The company therefore sits at the intersection of Hong Kong property, hospitality and a broader family-controlled business group. Its historical profile is marked by large-scale urban redevelopment ambitions, exposure to cyclical property markets, and the use of restructurings, joint ventures and asset sales to manage balance-sheet pressure.

Lai Sun Development was established in 1987 by Lim Por-yen, a Hong Kong textile magnate whose earlier business, Lai Sun Garment, had been founded in 1947. The development company became part of the broader Lai Sun group and was listed on the Hong Kong Stock Exchange under stock code 488. Lai Sun Garment became its controlling shareholder. The company expanded beyond straightforward property holding into hotel ownership, operation and redevelopment. Under Peter Lam, Lim Por-yen's son, Lai Sun Development pursued large urban projects, including the Furama Hotel site and the former Ritz-Carlton site in Hong Kong's Central district. In June 1997, Lai Sun Development made a major move into the hotel and property sector by acquiring Furama Hotel Enterprises. It purchased a 45.42 percent stake for approximately HK$3.13 billion and made a general offer for the remaining shares at HK$33.50 per share. The planned total expenditure was approximately HK$6.893 billion. Lai Sun intended to combine the Furama plot with a nearby Ritz-Carlton plot that it already controlled and create a prime office development. The timing proved difficult. The Asian financial crisis caused property and equity values to fall soon after the acquisition. Lai Sun had financed the transaction with approximately HK$5 billion in bank loans and more than HK$2 billion in bonds. Its value was reported to have fallen by half, pushing the group into financial distress and forcing a restructuring and programme of asset disposals. In March 2000, Lai Sun Development announced that a 65 percent interest in Furama would be sold to a joint venture between Pidemco, controlled by Temasek Holdings, and AIG. The consideration was HK$1.88 billion. Lai Sun retained responsibility for operating the hotel under a lease with annual rent reported at HK$145 million until redevelopment. The hotel closed in November 2001 and was demolished in December of that year. Lai Sun subsequently joined AIG and CapitaLand in Bayshore Development Group, which developed AIG Tower, a 39-storey commercial office building with approximately 450,000 square feet of gross floor area. AIG and CapitaLand each held 35 percent of the project vehicle, while Lai Sun held 30 percent. The group continued selling assets to reduce leverage. In 2002, when debt was still reported to exceed HK$6 billion, Lai Sun Development disposed of its 32.75 percent stake in Asia Television for HK$360 million. The buyer was Chan Wing-kee, the broadcaster's chief executive. The Ritz-Carlton plot later became the subject of another partnership. The land was held through Diamond String, a company 76.57 percent owned within the Lai Sun group. In November 2007, China Construction Bank agreed to buy a 40 percent interest in Diamond String for HK$1.37 billion, leaving Lai Sun Development with 60 percent. The partners planned to redevelop the approximately 14,900-square-foot site as an office tower, with completion expected in 2011 and part of the building intended for China Construction Bank. The Ritz-Carlton closed on 1 January 2008. Lai Sun Development's history illustrates the risks of highly leveraged expansion at the top of a property cycle, as well as the use of joint ventures, disposals and redevelopment projects to reposition a Hong Kong property portfolio. The company remains part of the Lai Sun group, with Peter Lam associated with both Lai Sun Development and Media Asia Entertainment Group.

• 2008

  Ritz-Carlton closes

  [1]Lai Sun Developmenten.wikipedia.org

  The hotel formally closed ahead of redevelopment into a planned commercial office tower.

• 2007

  China Construction Bank joins Ritz-Carlton site project

  [1]Lai Sun Developmenten.wikipedia.org

  China Construction Bank acquired 40 percent of Diamond String, the vehicle holding the redevelopment site.

• 2002

  Asia Television stake disposed

  [1]Lai Sun Developmenten.wikipedia.org

  Lai Sun sold its minority interest in Asia Television during a continuing deleveraging programme.

• 2001

  Furama closed and demolished

  [1]Lai Sun Developmenten.wikipedia.org

  The hotel closed in November and was demolished in December as part of the planned redevelopment.

• 2000

  Furama stake sold to joint venture

  [1]Lai Sun Developmenten.wikipedia.org

  The company announced the sale of a 65 percent Furama interest to a Pidemco-AIG joint venture.

• 1997

  Furama acquisition

  [1]Lai Sun Developmenten.wikipedia.org

  Lai Sun acquired control of Furama Hotel Enterprises through a large stake purchase and general offer.

• 1987

  Lai Sun Development established

  [1]Lai Sun Developmenten.wikipedia.org

  Lim Por-yen established Lai Sun Development as a property development company in Hong Kong.

• 1947

  Lai Sun Garment founded

  [1]Lai Sun Developmenten.wikipedia.org

  Lim Por-yen founded Lai Sun Garment, the textile business that later became Lai Sun Development's controlling shareholder.

A Hong Kong property developer focused on sizeable commercial, hotel and urban redevelopment assets, operating within the Lai Sun group.

• Real estate

  Commercial property development

  Lai Sun Development develops and participates in commercial real-estate projects, including office towers created through the redevelopment of centrally located Hong Kong sites. Its AIG Tower project illustrates the company's use of consortium structures with institutional and property partners.

• Hospitality

  Hotel properties and operations

  The company has owned interests in hotel assets and operated hotels through its hotels division. Hotel properties have also served as redevelopment opportunities, as seen in the transition of the Furama and Ritz-Carlton sites toward commercial use.

• Commercial office development

  AIG Tower

  AIG Tower was a 39-storey commercial office project developed through Bayshore Development Group after the Furama site's hotel use ended. Lai Sun Development held a 30 percent interest alongside AIG and CapitaLand, which each held 35 percent.

• 2007

  Bring China Construction Bank into Ritz-Carlton redevelopmentM&A

  Background

  Lai Sun Development planned to replace the former Ritz-Carlton hotel with a commercial office tower.

  Action taken

  China Construction Bank agreed to acquire 40 percent of Diamond String for HK$1.37 billion, leaving Lai Sun Development with a 60 percent interest.

  Aftermath

  The hotel closed in January 2008 and the partners proceeded with plans for a new office development intended to include China Construction Bank occupancy.

  Consideration for 40 percent Diamond String interest. HK$1.37 billion (2007)

  Source

• 2002

  Dispose of Asia Television stakeStrategy

  Background

  The group continued selling assets to reduce leverage after the financial difficulties associated with the late-1990s property downturn.

  Action taken

  Lai Sun Development sold its 32.75 percent interest in Asia Television to chief executive Chan Wing-kee.

  Aftermath

  The transaction formed part of the group's broader deleveraging and asset-disposal programme.

  Sale consideration. HK$360 million (2002)

  Source

• 2000

  Restructure Furama ownershipStrategy

  Background

  The company was restructuring after the Asian financial crisis and sought to reduce the financial burden associated with the Furama acquisition.

  Action taken

  Lai Sun announced the sale of a 65 percent Furama interest to a joint venture between Pidemco and AIG for HK$1.88 billion, while retaining hotel operating responsibilities pending redevelopment.

  Aftermath

  The hotel subsequently closed and was demolished, and the site was advanced toward the AIG Tower commercial project.

  Consideration for 65 percent Furama interest. HK$1.88 billion (2000)

  Source

• 1997

  Acquire Furama Hotel EnterprisesM&A

  Background

  Lai Sun Development sought to combine the Furama site with a Ritz-Carlton site it already owned and redevelop the combined area as a major office project.

  Action taken

  The company acquired a 45.42 percent stake for approximately HK$3.13 billion and made a general offer for the remaining shares, bringing the planned total cost to about HK$6.893 billion.

  Aftermath

  The Asian financial crisis caused a sharp decline in property and company values, producing substantial financial strain and leading to restructuring and asset sales.

  Approximate total acquisition cost. HK$6.893 billion (1997)

  Source

1. 1Lai Sun Developmenten.wikipedia.org