Rags-to-riches property executive transforms developer into gaming and entertainment firm, but aircraft lease raises regulatory questions
Mainland developer Yang Zhihui plans to turn Hong Kong-listed $蓝鼎国际(00582)$ into a gaming and entertainment operator after betting a fortune on building the largest casino-hotel-theme park-residential project on South Korea’s Jeju Island.
The low-profile 43-year-old found himself in the media spotlight in February when he announced Landing was forming a 50-50 joint venture with casino operator Genting Singapore to develop a US$2.2 billion casino resort on Jeju, a popular holiday destination for rich mainlanders.
“I’m now spending half of my time in Jeju and the remaining half in Hong Kong because of this project,” Yang, Landing’s chairman, said last week.
Because Yang and company management are flying more frequently between Hong Kong and Jeju, Landing has agreed to acquire a brand new aircraft, worth US$53.2 million, from Yang.
The company said last week it planned to spend HK$75 million on lease payments and operating expenses for the aircraft, a soon-to-be-delivered 14-seat Bombardier Global 6000, for the rest of the year.
“The aircraft could also increase the group’s efficiency and competitiveness by offering premium and efficient travelling services to its high-net-worth guests and customers for the future sale of the prime residential properties of the Jeju project, as well as its premium guests to the gaming and integrated resort when it opens progressively in the year 2017,” it said in an announcement filed with the Hong Kong stock exchange.
The money for leasing the aircraft will come from HK$661 million it raised in a share sale to four institutional investors three months ago.
Landing had originally planned to use HK$600 million of the proceeds for future investment and development costs of the Jeju project by next year, but it is awaiting final approval from Jeju’s provincial government and has cut the budget set aside for the Jeju project and other investments to HK$200 million. It also plans to spend HK$125 million on the Beluga Ocean Casino at the Hyatt Regency Jeju Hotel after acquiring its casino licence for HK$875 million in April.
The company will also spend HK$120 million to repay an entrusted loan carrying an annual interest rate of 13 per cent and HK$80 million for construction of a residential project in Yueyang, Hunan.
Landing said last week it would not rule out further debt or equity fundraising exercises to support development of the Jeju project or other developments.
One Hong Kong-based analyst, who requested anonymity, was less than impressed.
“How can it convince shareholders to accept that the company changed the use of the funds to buy the private plane from the chairman and repay a high-interest loan? What I know is that a company with good corporate governance will avoid connected transactions with the controlling shareholders,” the analyst said.
A Hong Kong stock exchange spokeswoman said companies that planned to change the use of proceeds from a share sale needed to disclose such changes. “Depending on the circumstances, the exchange will determine if further regulatory action is necessary or appropriate,” she said.
Yang began as a junior staff member at a property firm in Beijing, earning just 400 yuan a year, before climbing to vice-president with an annual salary of 10 million yuan (HK$12.5 million) in 10 years. He visited Jeju for a holiday in 2002 and was impressed by its spectacular scenery.
“More importantly, I learned the Jeju government was inviting tenders for the development of a 230 hectare site,” he said. “We sent a fact-finding team to study the possibility of the project.”
After more than a year of research and discussions with the Jeju government, Landing beat out local giants such as Samsung and Lotte Korea to win the development rights for the site.
“The Jeju government visited my firm, then based in Anhui, six times in order to examine my financial strength and our track record in property developments before granting the project to me in April last year,” Yang said.
At the time, Landing had an asset value of 12 billion yuan and had completed 15 property projects, comprising luxury residential projects, hotels, villas and offices.
Four months after securing the Jeju project, Landing secured a back-door listing in Hong Kong by acquiring a majority stake in locally listed lighting and property firm Greenfield Chemical.
Yang then began looking for a casino partner.
“We approached a number of big casino operators as potential joint venture partners,” he said. “After six months’ negotiation, we finally formed an alliance with Genting Singapore.”
Yang said Jeju’s government offered special incentives to attract foreign investment and allowed foreigners who invested more than US$500 million in a development project to include a casino in their plans. It also offered foreign investors a five-year waiver on profits tax, followed by a halving of the tax rate in the following two years.
The Landing-Genting project will be Jeju’s largest tourism resort, featuring luxury hotels, a shopping centre, a theme park, villas and flats, as well as gaming entertainment and other leisure and entertainment facilities.
Yang earlier indicated that the sale of residential and commercial units at the Jeju project could generate 15 billion yuan.
“We will offer the residential units for pre-sale in seven cities – Harbin, Changchun, Shenyang, Beijing, Shanghai, Shenzhen and Macau,” he said. “All these cities are only about a 90-minute flight from Jeju. Foreign investors who purchase a villa for more than US$500,000 will receive permanent residency.”
Sandy Li
