Hopson Development Holdings Ltd.

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Hopson Development Holdings Ltd.

MAINLAND PROPERTY PIONEER IN 1992

EXPANDING BEYOND GUANGZHOU

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

Suites 33053309
33rd Fl. Jardine House
1 Connaught Place
Central Hong Kong,
Hong Kong
Telephone: (
+852) 2537 3086
Fax: (
+852) 2537 2834
Web site: http://www.hopson.com.cn

Public Company
Incorporated:
1992
Employees: 3,596
Sales: HKD 8.86 billion ($790.7 million) (2006)
Stock Exchanges: Hong Kong
Ticker Symbol: 00754
NAIC: 237210 Land Subdivision; 236116 New Multi-Family Housing Construction (Except Operative Builders); 236117 New Housing Operative Builders

Hopson Development Holdings Ltd. is one of the largest and fastest-growing property development groups in the mainland Chinese market. The Hong Kong-based company, founded only in 1992, is a leading developer in its original base in Guangzhou, in Guangdong Province, considered to be one of the primary industrial and economic centers of the mainlands economic boom at the dawn of the 21st century. Hopsons share of the Guangzhou market stands at more than 7 percent. Since the early 2000s, however, Hopson has systematically expanded its landholdings and development projects throughout China, and especially into the countrys other major property markets, notably Beijing, Shanghai, Tianjin, and Huizhou. At the middle of the decade, Hopsons total landbank stood at more than 14 million square meters, much of which had been acquired at low prices during the property dip at the beginning of the decade. Hopson maintains a highly active property development portfolio, with more than 75 projects under construction at mid-decade, most of which are either wholly or majority owned by the company. Some 30 of the groups current projects were launched in 2006 alone. The companys own development operations focus on the residential market. Hopson also holds investments in existing properties, with an emphasis on retail developments and car parks. Hopson has been listed on the Hong Kong Stock Exchange since 1998. The company remains controlled by founder Chu Mang-Yee, whose 63 percent shareholding has placed him among the worlds billionaires. Other major strategic investors include Temasek Holdings subsidiary Aranda and U.S.-based investment group Tiger Global LP. In 2006, Hopson posted revenues of HKD 8.86 billion ($790.7 million).

MAINLAND PROPERTY PIONEER IN 1992

Prior to the 1990s, the property development market in mainland China did not exist. Strict controls by the Chinese government over housing and other developments, as well as the governments policy of maintaining ownership of all land in the country, meant that, with the loosening of economic policy in the early 1990s, the stage was set for a real estate boom that transformed China into one of the worlds most vibrant property markets.

The explosive growth of the countrys industrial sector in the late 1980s and especially into the 1990s not only drew an increasing proportion of the population into the countrys urban areas, it also helped create a new and fast-growing middle class. The appearance and rapid development of this class, accompanied by the rise of a wealthy class, in turn inspired new demands for higher-end residential properties than those built under the authority of the Communist government. In response, the government began reforming its real estate policies to allow for private development. While the land itself remained the property of the Chinese government, prospective developers were now able to acquire the right to build on the properties, generally accompanied by long-term leases in the range of 70 years or more. These reforms created new opportunities for the countrys would-be property developers.

Among them was Chu Mang-Yee, who had established his career within the Chinese government bureaucracy. While serving the government, Chu gained experience working within the construction and property development area. This experience enabled Chu to become one of the early entrants into the newly emerging private sector property development market, and in 1992 Chu became one of the founders of a new company, Hopson Development Holdings.

Hopson initially focused on the Guangzhou region. The main city of Guangdong Province, Guangzhou (once more commonly known as Canton) became one of the first areas in the country to enjoy free trade zone status, placing the city at the center of Chinas industrial boom in the late 1980s and 1990s. The citys proximity to Hong Kong also made it a highly prized location. Led by Chu, Hopson began acquiring a significant land-bank in Guangzhou, rapidly becoming one of the markets leaders.

Hopsons strategy was to focus on acquiring less centrally located properties. By adding holdings in less developed areas outside of the citys central areas, and along its outskirts, the company was able to build a strong landbank at a reduced cost. Nonetheless, Hopson chose its acquisitions carefully, picking up sites in highly strategic locations, particularly those with access to the citys highway and other transport infrastructure.

The company clearly targeted the rising middle-and upper-middle class markets with the construction of a number of large-scale residential complexes. Hopson focused especially on two of Guangzhous fastest-growing sections, Tianhe and Haizhu. The Tianhe sector alone counted for more than 70 percent of the companys total landbank into the late 1990s.

The Gallopade Park complex provided an example of Hopsons project development work during this period. Launched in the early 1990s, the completed Tianhe District project encompassed a total of 68 mid-rise residential towers, accompanied by a two-tower research center, three office blocks, and a two-tower training center. The companys Huajing New City development, built during the same period near the Kowloon-Canton train terminal, and in proximity to the Huanan Expressway, initially consisted of four high-rise residential buildings, as well as 23 mid-rise buildings and office and retail complexes. In later phases, that site was expanded through the construction of an additional 22 high-rise residential towers, as well as a four-story retail and leisure center. Other projects launched and/or completed during the 1990s including Jinan Garden, Fairview Garden, Regal Court, Grandview Place, Riverside New City, and Parkview Villa. The company also launched a development in Yuexiu District, where it built the Zhujiang International Building, combining service apartments with retail and parking spaces.

The companys brisk expansion allowed it to claim some 7 percent of the Guangzhou residential development market by the late 1990s. The company had also seen strong revenue growth, with its turnover rising from just HKD 120 million in 1995 to more than HKD 1.3 billion by 1998.

COMPANY PERSPECTIVES

In pursuit of its business concept of realising the impeccable quality of living, Hopson has dedicated itself to becoming the creator of a perfect lifestyle. As a modern enterprise originated in Hong Kong, Hopson aggregates the advantages of China and Hong Kong in order to bring examples of world-class living to China, making the dreams come true for PRC residents and achieving an ideal lifestyle for their property owners.

In order to fuel its further expansion, and to continually replenish its landbank, Hopson Development listed its shares on the Hong Kong Stock Exchange, and moved its headquarters to that city in 1998. Following the listing, Hopson began acquiring new landholdings, a process which also included acquiring majority, if not full, control of most of its major development projects. At the same time, Hopson focused on expanding a number of its existing sites. As an example, the company acquired the neighboring properties to its Pleasant View Garden site, in order to more than triple the total surface area of that development.

EXPANDING BEYOND GUANGZHOU

As its properties reached completion and the first residents took possession of their homes and offices, Hopson responded by establishing its own property management subsidiary, Guangdong Esteem Property Services Limited, in 2000. The new subsidiary also helped boost the companys effort to attract new residents following the institution of new housing reforms by the Chinese government, which were enacted to encourage the markets transition from one based on large-scale institutional purchases of residential properties to an individual-based housing market. Hopson itself successfully made this transition, and into the early 2000s, more than 85 of its property sales came from the individual market.

By 2001, Hopsons landbank stood at more than 4.2 million square meters. The companys growth was aided by the strong growth in the Guangzhou market in general, among the most vibrant in China, and in the world. Indeed, by the early 2000s, Chinas GDP topped 7 percent, ranking the country among the worlds top performers. Yet the Guangzhou market was responsible for a significant part of that growth, as its own GDP nearly doubled the national average, nearing 14 percent.

Concerns that Chinas construction market was overheating, which prompted a new series of reforms by the Chinese government, caused a dip in market prices at the beginning of the 2000s. Hopson took advantage of the softened prices to make massive new additions to its landbank, placing the company in a strong position as the property development marketbuoyed by Chinas entry into the World Trade Organization and its upcoming hosting of the 2008 Olympic Gamescontinued its steady expansion.

Hopson itself became determined to expand beyond its core Guangzhou market in the early 2000s, and a significant part of its new land acquisitions came as part of a strategy to increase its geographic scope. For that effort, the company became determined to build a presence in a number of other major mainland markets, including Beijing, Shanghai, Tianjin, and Huizhou.

Hopson quickly made good on its expansion plans. In 2002, the company invested nearly HKD 937 million in a joint venture with Guangdong Zhujiang Investment, already a partner with Hopson in a number of its Guangzhou developments. The joint venture quickly bought five properties, including three in Beijings Chaoyang District totaling more than 1.3 million square meters for a total investment of nearly HKD 700 million. At the same the company added its first property development in Tianjin, a 2.5-million-square-meter tourist and resort development. The company also boosted its Guangzhou presence with the launch of a 74,000-square-meter development there.

Hopson soon added properties in other major Chinese urban markets, including its first entry into Shanghai toward the middle of the decade. In 2005, the company further enhanced its position in the Beijing market, acquiring two adjoining sites in the centrally located Chaoyang district. The company announced plans to build a combined residential and retail complex with a total area of nearly 170,000 square meters, at a cost of more than HKD 1 billion. By then, the companys total landbank was nearly 13 million square meters.

The move into Beijing, as well as further expansion into Shanghai and Tianjin, helped raise Hopson into the top ranks of the mainlands fast-growing property development groups. By the end of 2005, Hopson could already claim the number three position. In 1995 the company added a new chief executive officer, Wu Jiesi, formerly with Guangdong Investment and a former mayor of Shenzhen, who announced plans to take the markets lead by as early as 2007. As part of this effort, the company brought in two new strategic investors, Aranda, part of Singapores Temasek Holdings, and the U.S.-based investment group Tiger Fund. The share sale enabled the company to raise nearly $1 billion in new funding.

KEY DATES

1992:
Hopson Development Holdings is founded by Chu Mang-Yee and others to develop new residential and commercial properties for the Guangzhou region.
1998:
Hopson goes public, listing shares on the Hong Kong Stock Exchange.
2002:
Company launches drive to diversify geographic focus, adding first properties in Beijing and Tianjin markets, before expanding into Shanghai and Huizhou areas.
2006:
Company raises HKD 1 billion through sale of 60 million shares in order to acquire new properties.

Continued concerns for what many considered to be an overheated housing market led the Chinese government to enact new restrictions on property development. With its large landbank, Hopson was able to profit from the new measures, which by limiting future property developments, helped raise prices in the companys existing markets. The company also shifted its efforts to acquiring stakes in existing developments, such as the May 2006 purchase of a nearly 61 percent stake in Beijing Dongfangwehhue, then in the process of developing a 15,834-square-meter site in the Dongcheng District, one of the most active areas of Beijing. The remaining shares of that company were held in large part by Chu Mang-Yees brother and brother-in-law.

Hopson also took steps to restructure its portfolio in order to take advantage of continuing gains by the real estate market. In July 2006, for example, the company sold off its 50 percent holding in a major commercial development in Shanghai, the Hopson International Tower, raising $150 million. Yet acquisitions of new properties remained a company priority, as the company continued a spending spree of more than HKD 2.5 billion through 2006. At the end of that year, the company took steps to boost its treasury for a new round of acquisitions. In November 2006, the company raised nearly HKD 1 billion through the placement of 60 million shares on the market. The company followed this offering with a convertible bond sale, adding an additional $235 million to its treasury. With a landbank topping 14 million square meters into the beginning of 2007, Hopson Development Holdings had developed into a leading player in the booming Chinese real estate market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Guangdong Esteem Property Services Limited.

PRINCIPAL COMPETITORS

China Poly Group Corp.; Shanghai Alison Group Company Ltd.; China Vanke Company Ltd.; Baoye Group Company Ltd.; North China Pharmaceutical Company Ltd.; China Enterprise Company Ltd.; Nanjing Xingang High-Tech Company Ltd.; Shenzhen Changcheng Investment Holding Company Ltd.; Shanghai Industrial Development Company Ltd.; Shui On Land Ltd.; Beijing Vantone Pioneer Real Estate Company Ltd.

FURTHER READING

Chan, Doris, Hopson Makes Move into Lucrative Beijing Market, South China Morning Post, January 11, 2002.

Cheung, Jackie, Hopson in $996m Share Sale to Buy Land, Standard, November 4, 2006.

HK Equities Red Hot with IPOs, Block Trades, Euroweek, January 19, 2007.

Hopsons Renminbi Bonds to Debut in Hong Kong, Alestron, January 23, 2007.

Hopson to Invest RMB 1.1bn on Properties, Sing Tao Daily, December 8, 1999, p. 15.

Li, Sandy, Hopson Prepares $1bn Injection for Guangdong Sites, South China Morning Post, December 8, 1999.

Stepping into the Limelight, Asiamoney, November 2006.

Wang, Raymond, $500m Gain for Hopson in Shanghai Project Deal, Standard, July 26, 2006.

Yeung, Frederick, Hopson New Profit Leaps 181% on Land Boom, South China Morning Post, April 14, 2006.

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