Father-Son Venture Expects
To Fuel New Property Buys

By JON E. HILSENRATH
Special to THE WALL STREET JOURNAL

HONG KONG -- Richard Li would like to own a bigger chunk of Tokyo's land, and a new joint venture with his tycoon father, Li Ka-shing of Hong Kong, should help him do that.

The Pacific Century Group, which is controlled by the 30-year-old son, and Hutchison Whampoa Ltd., which Li Ka-shing controls, announced late Wednesday that they are teaming up on a high-profile property project in a prime commercial site adjacent to Tokyo Station, in the city's Marunouchi business district.

The joint venture will yield privately held Pacific Century 21.6 billion yen ($186.8 million) -- Hutchison's investment in the project -- which the group plans to use for future acquisitions in Tokyo, according to a Pacific Century official. It will yield the elder Mr. Li a 45% stake in the Marunouchi property and a chance to further diversify Hutchison's property portfolio out of Hong Kong, where the outlook for property prices is uncertain.

The 52,250-square-foot piece of land, which was auctioned off by Japan National Railways Settlement Corp., is considered prime commercial real estate in the heart of Tokyo's business district. It will be developed by the joint venture into a 549,000-square-foot office and shopping complex, which is expected to command premium rents.

Pacific Century topped five other contenders for the property in March, with a sealed bid of 86.8 billion yen ($716.6 million at the time), which it is financing through a combination of debt and equity. Since March, the Hong Kong group has purchased four smaller properties in Tokyo, and it is near completing a fifth purchase, says Francis Yuen, Pacific Century's deputy chairman.

"We are buying more properties in Japan at the moment," Mr. Yuen says. He adds that future purchases probably will exceed the 21.6 billion yen from Hutchison's investment, but that the investment nevertheless will help Pacific Century to finance these acquisitions.

Some analysts say the young entrepreneur, who also is deputy chairman of Hutchison, paid too much when he purchased the Tokyo Station site in March. But his father apparently didn't think so. When finance charges and origination fees are added in, the acquisition cost the younger Mr. Li about 91.5 billion yen, 43.5 billion of which is being financed with debt, according to Mr. Yuen. Li Ka-shing's 21.6-billion-yen investment means he bought his 45% stake in the project's 48 billion yen in equity at its original cost to Pacific Century. Analysts say the investment came at a time Hutchison was flush with cash, as it had raised $2 billion with a Yankee-bond issue in late July.

Is this the start of closer business ties between the father and son? Mr. Yuen says future ventures with Hutchison will be dealt with case by case, and that "if they are interested to come in, we will be happy to consider."

Analysts say the father-son venture now gives Hutchison Whampoa exposure to a Tokyo property market that has probably bottomed out. "It looks as though they bought into an attractive site," says Mark Simpson, head of research at Schroders Securities Asia.

But the investment shouldn't mean too much to Hutchison's investors, he adds. By Mr. Simpson's estimate, the purchase amounts to only about 1.5% of Hutchison's property portfolio and only 0.6% of the value of its total assets. So it shouldn't have a big impact on Hutchison's net-asset value or its earnings performance, especially since the property won't be producing rental income until 2001, when the development is expected to be completed.