China's Communist Party Has Ties to $5.15 Billion Hong Kong Property Deal

By Wenxin Fan and Natasha Khan Features Dow Jones Newswires

Hong Kong's richest person has just reached one of the world's largest-ever property deals, and it involves the Communist Party of China.

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Billionaire Li Ka-shing's CK Asset Holdings Ltd. sold its stake in a skyscraper, The Center, for 40.2 billion Hong Kong dollars (US$5.15 billion) to CHMT Peaceful Development Asia Property Ltd., a British Virgin Islands-incorporated vehicle set up specifically for the purchase, CK Asset said late Wednesday.

CHMT appears to stand for China, Hong Kong, Macau, and Taiwan, based on its name in Chinese characters.

The transaction is the world's largest ever commercial property deal for a single building, according to data from CBRE, a real estate services firm.

About 55% of CHMT's shares are owned by a Hong Kong unit of China Energy Reserve and Chemicals Group, a Beijing-based conglomerate that specializes in the oil-and-gas industry, the group confirmed to The Wall Street Journal on Thursday.

"We're responding to China's call to explore the overseas market," says Zhang Wenbin, a China Energy Reserve and Chemicals executive. In a telephone interview, he confirmed he is also a director at two of its Hong Kong affiliates. "Our wish is to own a few floors in some of Hong Kong's hallmark office buildings and maybe put our logo on the top."

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"The price isn't high," he added.

Unlike other Chinese companies that have grabbed overseas assets in recent years, a piece of the conglomerate is owned by China's sole ruling party, corporate filings show. One of China Energy Reserve and Chemicals' four owners is an entity called China Hualian International Trade Co., which holds a 15% stake, the filings show. And Mr. Zhang confirmed this.

China Hualian, in turn, is ultimately owned by the International Department of the Central Committee of the Communist Party of China, the filings show.

The department represents the Communist Party in its overseas affairs and deals with foreign parties and political organizations in more than 160 countries, according to its website.

The department's link to this huge property transaction is unusual: It doesn't appear to have a direct stake in any other businesses in China, based on a review of the nation's company registry database. Other big state-owned Chinese companies have bought property in Hong Kong in recent years, but those companies are owned by the state, rather than the Communist Party.

With this deal, "the party seems to be taking on a role traditionally reserved for state-owned companies and private business," said Fraser Howie, co-author of the book "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise."

"[The Communist party] is putting itself front and center of China going abroad, which fits into the narrative of the absolute role the party has for all things China--that it's the future and there's no room for anyone else," he said.

Mr. Zhang, the China Energy Reserve and Chemicals executive, declined to comment on the nature of his company's link to the party department and its involvement in the property deal.

The Center, at 73 stories, is an instantly recognizable part of Hong Kong's skyline and it lights up in rainbow colors every night at 8 p.m. Its lobby was featured in the second installment of filmmaker Christopher Nolan's Dark Knight Trilogy, "The Dark Knight," in a scene where Batman plunges through a window to capture a villain. It is the fifth-tallest building in Hong Kong, according to the Skyscraper Center, a database.

Rumors that Mr. Li was seeking a buyer have been circulating for months. Office rents in Hong Kong's Central district, where The Center is located, are the world's most expensive, according to CBRE, which tracked prices in 121 districts for the first half of the year. Midtown Manhattan was the fourth most expensive, following West Kowloon, another district in Hong Kong.

The city's Central district has been attracting more mainland Chinese money in the past few years, driving rents up and prompting some Western banks and law firms to search for cheaper accommodations.

There had been some concern that China's clampdown on capital outflows would lead to a slowdown in Hong Kong real estate deals. That hasn't been the case. In May, Henderson Land Development Co., which is led by one of Mr. Li's most prominent rivals, bought a site in the city center with a parking lot on it for nearly US$3 billion. Henderson Land plans to redevelop that site.

The deal for The Center shows that property demand from the mainland remains strong and capital controls may not be as strong as some investors think, wrote Raymond Cheng, director of Hong Kong and China property research at CIMB Securities Ltd.

"As Grade-A office assets are a rare commodity in Central Hong Kong, this transaction is clearly one of the landmark deals in the past decade, " said Henry Chin, CBRE's head of research for the region. "The most pressing issue facing the Hong Kong office market is scarcity of supply and an iconic asset like The Center is extremely appealing for China-based investors to gain a major foothold in the city."

Selling the building marks a milestone for Mr. Li, whose immense wealth has risen in line with the city's property prices. The tycoon, who will turn 90 next year, has stepped up a diversification drive across his companies in recent years, making investments in telecommunications, utilities and biotechnology, including some large acquisitions in Europe. Mr. Li plans to step down as chairman of his global conglomerate, CK Hutchison Holdings Ltd., by next year.

(END) Dow Jones Newswires

November 02, 2017 04:35 ET (08:35 GMT)