Chinese Real Estate Developers Arrested for Corruption

Story first appeared in the Yahoo news.

HONG KONG  - More than $5 billion was wiped off the market value of Sun Hung Kai Properties on Friday, after the billionaire owners of Asia's largest real estate developer were arrested on suspicion of corruption.

Hong Kong's Independent Commission Against Corruption (ICAC) arrested the owners in the agency's biggest investigation since it was set up in 1974 to root out what was seen as widespread corruption in the government and police.

The arrests on Thursday come just days after Hong Kong elected its next leader, pledging land for cheaper public housing, and as soaring property prices, the most expensive in the world, have stirred public discontent. Home prices almost doubled in the five years to end-2011.

The owners were released late on Thursday but were expected to return for more questioning, according to a source familiar with the matter. Local media reporters said the brothers were still inside a Deepwater Bay luxury compound on the south side of Hong Kong on Friday.

The owners are worth $18.3 billion, according to Forbes magazine, the second-biggest family fortune in Hong Kong after Asia's richest man,  founder of rival developer Cheung Kong (Holdings) .

Shares in Sun Hung Kai slumped more than 15 percent to 15-week lows when they resumed trading on Friday. The company owns some of the former British colony's largest properties, including its tallest building, the International Commerce Centre that houses Morgan Stanley and the Ritz Carlton.

BUSINESS AS USUAL

Sun Hung Kai said the owners would continue with their duties as chairmen and managing directors, and normal business operations would not be affected.

In the past two weeks, Sun Hung Kai has also disclosed that the employee in charge of project planning and land acquisitions, had been arrested for suspected bribery, and the executive director of architectural and engineering services, had died, peacefully - meaning of the company's seven executive board members, three have been arrested, and one has died.

Details of what is behind the arrests remain unclear.

The unfolding scandal has gripped Hong Kong, the world's most densely populated city which was returned to Chinese rule by the British in 1997.

The potential conflict of interest in a senior government official living - rent-free, according to media reports - in an upscale residence owned by an influential property family has not escaped public and media attention.

FAMILY FEUD

The owners' family had a public feud in 2008 that ended with the elder being ousted as chairman. The two younger brothers, backed by their mother, claimed the elder brother was mentally unfit to run the business, claims the elder brother has denied.

That aside, the brothers who run the company's construction and engineering departments, and look after legal and financial issues - have a relatively low media profile.

Others also expressed concern about the impact on Hong Kong's reputation for corporate governance.

A loan banker in Hong Kong, who asked not to be named as his bank is a lender to Sun Hung Kai, said there was unlikely to be any significant impact on the company's business.

WALTER'S WRIT

In a writ filed in Hong Kong in 2008 as part of his bid to avoid his ouster, the eldest brother said his brothers repeatedly disagreed with his attempts to improve management at the company. He also said he tried to investigate the sale of a parcel of land in Hong Kong's New Territories at more than the asking price, and look into why construction contracts awarded by Sun Hung Kai went to a select number of contractors.

The ICAC had an 88 percent conviction rate on the 443 people it prosecuted in 2010.

Over the past four decades, Sun Hung Kai, listed in 1972, has built some of Hong Kong's most expensive property, from luxury hilltop apartment blocks and harbor-front skyscrapers to landmark office buildings.

The company's net profit has soared to HK$48 billion ($6.18 billion) in the year to last June from $10.4 billion two years earlier.

Cruise Operators Target Asian Travelers, Pitching Short Trips From Local Ports

With two swimming pools, a rock-climbing wall, a plush theater, and cabins for 2,000 guests, the Rhapsody of the Seas is the biggest passenger cruise ship ever to have offered round-trip sailings from Hong Kong. The 11-story behemoth enticed newly prosperous Asians to try the unfamiliar pastime of Western-style luxury cruising while it was based here earlier this year, and its owner, Royal Caribbean Cruises Ltd., is hoping the ship's latest stint, in Shanghai, is a similar success.

Although Asia accounted for less than 5% of the global cruise market last year, the number of Asians taking cruises annually will swell to 1.5 million by 2010, up 40% from 2005, according to a forecast by Shanghai expects to open its striking new Ocean Shipping Consultants Ltd. That's faster growth than the 30% rise expected over the period in the more mature North American market, which had about 9.3 million cruise passengers in 2005.

Rising incomes, especially in China, are driving the Asian surge. Already, the number of mainland Chinese taking cruises from Hong Kong alone more than doubled to 459,000 last year from 201,000 in 2005, according to the Hong Kong Tourism Commission. "Everyone is eyeing this piece of the cake," says Michael Goh, vice president for sales and marketing at Malaysia-based Star Cruises Ltd., the world's third-biggest cruise company in terms of passengers, revenues and fleet size. And as cruise lines are finding their way in this market, Asian ports from Shanghai to Singapore are building fancy new passenger terminals to serve them.

Cruise operators say their biggest challenge in mainland China is getting out the message to prospective customers that a cruise ship isn't just a means of transportation, like a ferry. They have another issue in the special Chinese territory of Hong Kong, where passengers mostly sailed into international waters just to gamble.

Star Cruises still offers a one-day round trip to nowhere in the South China Sea, but it plays down its casinos now. Instead the company promotes "family karaoke" and waterslides, as Asians take their children on cruises more often than their counterparts in Europe or North America. At the same time, Star Cruises tries to tempt adults with events such as Mexican-style fiestas featuring "invigorating tequila," as described on its Web site.

Star is the dominant player in Asia now, with a total of seven ships in Singapore, Hong Kong and Taiwan. Passengers on its cruises to destinations such as Thailand and Cambodia are overwhelmingly Asian, though the company won't disclose specific numbers. This month, Hong Kong became the new home for its largest ship, the SuperStar Virgo, with a capacity of 1,870. Star says it moved its flagship here from Singapore to better exploit demand in mainland China, Taiwan and Hong Kong.

Royal Caribbean, the world's No.2 cruise line in terms of fleet size, passengers and revenue, has tailored the Rhapsody of the Seas for Asia's nascent market by offering acrobatic and magic shows-"language-neutral" entertainment for passengers who don't necessarily share languages or understand English. Crucially, it and other cruise companies are offering Asians shorter itineraries, as people here get less vacation time than Europeans or Americans. In another part ofthe world, the Rhapsody might take passengers on intercontinental journeys lasting weeks. In Asia, typical cruises last just five to seven days.

"If you try to offer something over seven days, you are dead. There is no market," says Massimo Brancaleoni, vice president for operations in Asia at Costa Crociere SpA, a Genoa, Italy, company that is part of the No. 1 cruise operator Canival Corp. Cost Crociere, which has 12 ships around the world, since 2006 has based the 1,000-passenger Costa Allegra in Hong Kong and Shanghai. In March, it plans to put another ship in Asia that can carry up to 1,700 passengers.

Teddy Tsang, a 48-year-old publishing plant manager in Hong Kong, took a four-day cruise on the Rhapsody in February with his wife and daughter after seeing "a lot of newspaper ads" in local Chinese-language papers touting the company's cruises and hearing recommendations from friends. His only previous cruise on a gambling ship had left him unimpressed. "I went a few times to the casino, but I didn't want to spend the whole day gambling," he says. But after the latest cruise, which cost around $385 per person, he enthused about a dinner of herb crusted cod with saffron-champagne sauce and the staff's swift delivery of extra towels to his cabin.

Before bringing the Rhapsody to Asia, Royal Carribbean in July transferred the headquarters of its Asian business to Singapore from Miami. Previously, the company had offered only intermittent cruises in Asia- stopping them altogether in 2002 - and targeted non-Asians with journeys lasting around two weeks. When the Rhapsody was based in Hong Kong in February and March, at least 65% of its passengers were Asian. The ship sailed to destinations including Vietnam, China, Taiwan and Japan, and it filled four out of every five cabins on average, the company says.

"Very few Asians have experience in cruising, but our experience here so far demonstrates that that's only because there has been little opportunity in the past," says Richard Fain, Royal . Caribbean's chairman and chief executive officer. The Asian business generated an insignificant share of the company's total sales of $6.15 billion last year, but the market is "enormous," he says. "I'm convinced the demand is there."

But Rhapsody's very size presents a problem. The ship is too tall to squeeze beneath all of Shanghai's bridges and dock in the city's downtown area; it's also too large to berth at the cruise terminal in Singapore. Therefore, Royal Caribbean plans this year to transfer Rhapsody to Australia and New Zealand, both booming cruise markets, and replace it in December with a slightly smaller sister ship, Legend of the Seas .

Legend has room for 1,800 passengers, 200 fewer than Rhapsody, but the ships have similar amenities. Indeed, the smaller ship has one feature that its sister lacks: an 18- hole miniature golf course. Legend will offer cruises lasting between four and seven days and will operate from Singapore and Shanghai.

Royal Caribbean's new Azamara Cruises unit plans to begin operating its first ship from Asian ports in January. Azamara targets a wealthier clientele than Royal Caribbean International, the brand for Legend and Rhapsody

Cruise lines are still learning how best to satisfy their Asian customers. Kelvin Tan, Royal Caribbean's director of business development in the Asia-Pacific region, says his company's cruises aim to be "very family friendly," with activities such as a "pirates night" dress-up event for kids. For adults, offerings include cooking classes, spa services, ping-pong competitions and singles mixers.

Nevertheless, Mr. Tsang, who sailed to Taiwan on his Rhapsody cruise, complains that he and his family sometimes found themselves "hanging around" with not enough to do. "For the Asian people, we need more aggressive staff that will set up a program for passengers," he says.

By August, Shanghai expects to open a new cruise-ship terminal near the city's historic downtown district designed to handle up to one million passengers a year. It will be one of Asia's most unusual terminals, a three-story, glassed-in bubble that looks "like a UFO," says Helen Huang, deputy general manager of corporate affairs at Shanghai International Port (Group) Co., the main developer of the $100 million project.

Singapore plans to build a bigger cruise terminal by 2010, and Hong Kong expects to open a new one by 2012.

Hong Kong's needs are particularly acute. When the 150,000-ton Queen Mary II docked here last spring, the city took a public-relations hit as bewildered passengers, rather than docking in Victoria Harbor, had to disembark at a gritty container port-the only facility that could accommodate the massive Cunard Lines ship.

By: Bruce Stanley
Wall Street Journal; April 28, 2008