Business

     




Published: Monday May 28, 2012 MYT 12:15:00 PM
Updated: Monday May 28, 2012 MYT 2:38:03 PM

Billionaire Kwok brothers renew bail in HK graft probe: source


HONG KONG (Reuters): Thomas and Raymond Kwok, joint chairmen of Sun Hung Kai Properties, Asia's biggest developer, appeared briefly on Monday at Hong Kong's anti-corruption agency to renew their bail as part of a graft investigation that has gripped the former British colony and sapped shareholder confidence in the conglomerate.

Rafael Hui, a former head of Hong Kong's civil service, also reported to the Independent Commission Against Corruption (ICAC), leaving after a short stay.

More than $7 billion has been wiped off the company's market value since the billionaire Kwok brothers were arrested in late-March. Their estranged brother Walter was arrested earlier this month, widening a probe that has also netted Thomas Chan, the board member in charge of land purchases, and Hui, Hong Kong's chief secretary from 2005 to 2007 and a friend of the Kwoks since childhood.

Raymond Kwok arrived at the agency in the back of a black limousine wagon, looking stern. The cars of all three men were mobbed by TV crews and photographers trying to catch a glimpse of those involved in the ICAC's highest-profile case since its founding in 1974.

Raymond Kwok, co-chairman of Hong Kong developer Sun Hung Kai Properties, arrives at the Independent Commission Against Corruption (ICAC) headquarters in Hong Kong May 28, 2012. Kwok returned to the city's anti-corruption agency on Monday, Hong Kong cable television reported, as an investigation into Asia's largest developer continues. Five of those connected to Sun Hung Kai arrested in the investigation were expected to appear, according to sources involved in the case. REUTERS/Tyrone Siu

All three renewed bail, said one source with direct knowledge of the proceedings. Chan and Walter Kwok were also expected to appear at the ICAC later on Monday. No charges have been laid by the ICAC, and shareholders say Sun Hung Kai, which owns the International Commerce Centre (ICC), the city's tallest building and home to Morgan Stanley, Deutsche Bank and the Ritz Carlton, has lacked transparency over the probe.

"The longer it goes on, the longer it drags on the stock, and potentially wears on the business itself," said Tim Gibson, head of property equities in Asia for Henderson Global Investors, a fund manager that runs $800 million in Asia real estate stocks, including Sun Hung Kai. "It's a distraction we could do without."

The scandal has raised questions about the close ties between the clubby tycoon-dominated economy and the government.

The ICAC, which has said it is investigating suspected bribery and misconduct in public office, has the option of extending bail, charging those arrested or letting them go with an option to re-arrest them at a later date.

Former Hong Kong Chief Secretary Rafael Hui (L) leaves the Independent Commission Against Corruption (ICAC) headquarters in Hong Kong May 28, 2012. Raymond Kwok, co-chairman of Hong Kong developer Sun Hung Kai Properties, returned to the city's anti-corruption agency on Monday, Hong Kong cable television reported, as an investigation into Asia's largest developer continues. Kwok's estranged brother, Walter, was arrested earlier this month, widening a probe that has also netted Thomas Chan, the board member in charge of land purchases, and Rafael Hui, Hong Kong's chief secretary from 2005 to 2007 and a friend of the Kwoks since childhood. REUTERS/Tyrone Siu

Sun Hung Kai, which counts Hong Kong telecom, bus and waste management units as part of its empire, was worth $37 billion before news of the March 29 arrests. The stock lost $5 billion the next day and has continued to lose steam, sinking to a 7-month closing low on May 18.

Sun Hung Kai shares were down 0.8 percent on Monday, underperforming the benchmark Hang Seng index <.HSI>, which was up 0.3 percent.

The three Kwok brothers have said they have done nothing wrong, and Thomas and Raymond insist it's business as usual at the family conglomerate. They have declined further comment, citing the investigation.

"GROSSLY INADEQUATE" DISCLOSURE

As the largest component of the FTSE EPRA/NAREIT Developed Asia index <.FTENA3>, Sun Hung Kai is a must-have for mutual funds tracked against that much-followed benchmark.

The investigation overhang presents a tricky situation.

Investors are unsure whether now is a good time to buy a stock that has shed a fifth of its value, or whether they should sell a company whose top executives are ensnared in a messy scandal that may play out over several years. The Kwoks are preparing for a 7-year legal fight, according to one source familiar with their planning, who did not want to be identified.

One mutual fund investor said disclosure from Sun Hung Kai and investigators had been "grossly inadequate", adding the company had done little other than set up an internal committee to handle the investigation.

"Their actions to date haven't given minority shareholders a lot of comfort that they are dealing with it as seriously and aggressively as they could if it wasn't the family," said the investor, who did not want to be named.

Thomas Kwok, co-chairman of Hong Kong developer Sun Hung Kai Properties, arrives at the Independent Commission Against Corruption (ICAC) headquarters in Hong Kong May 28, 2012. Raymond Kwok, co-chairman of Hong Kong developer Sun Hung Kai Properties, returned to the city's anti-corruption agency on Monday, Hong Kong cable television reported, as an investigation into Asia's largest developer continues. Five of those connected to Sun Hung Kai arrested in the investigation were expected to appear, according to sources involved in the case. Hong Kong's highest-profile graft scandal saw the arrests of Thomas and Raymond Kwok in March. REUTERS/Tyrone Siu

Analysts' ratings on Sun Hung Kai stock have all been negative since the arrests of the firm's co-chiefs. 'Strong Buy' and 'Buy' recommendations have dropped to 8 from 18 two months ago, and the number of 'Strong Sell' and 'Sell' notices has more than doubled to 5. 'Hold' ratings have jumped to 10 from 4.

Sun Hung Kai's net income is forecast to more than halve in the year to end-June, to HK$21.13 billion, according to a mean estimate on Thomson Reuters StarMine. Full-year results are due in September.

FAMILY CONCERN

Like most of Hong Kong's powerful property companies, Sun Hung Kai remains very much a family concern, raising the stakes if the Kwoks are unable to continue their duties.

Shareholders should sell Sun Hung Kai stock into any short-term strength, CLSA Asia-Pacific Markets advised in a trading note this month. The broker has an 'underperform' rating on the stock. Other landlords such as Wharf Holdings <0004.HK>, Hang Lung Properties <0101.HK>, Hongkong Land and Swire Properties <1972.HK> stand to benefit if shareholders lose faith in Sun Hung Kai, mutual fund investors said.

The company remains Asia's biggest property developer - but only just. Rival Cheung Kong (Holdings) <0001.HK> is valued at $28 billion, and Australia's Westfield Group at $21 billion. Globally, Sun Hung Kai trails only U.S. shopping mall developer Simon Property Group by market value.

  • E-mail this story
  • Print this story
  • Bookmark and Share
 

advertisement