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The Government has today (May 17) signed the Cyberport Project Agreement with Pacific Century CyberWorks (PCCW) and Cyber-Port Limited, a special purpose vehicle (SPV) set up under PCCW to perform the role of Cyberport Developer.

Announcing this today, a Government spokesman said the Project Agreement was signed by the three limited companies set up by the Government to implement the Cyberport project. They are the Hong Kong Cyberport Development Holdings Company Limited and its two subsidiaries functioning as SPVs - Hong Kong Cyberport Management Company Limited and Hong Kong Cyberport (Ancillary Development) Company Limited. These companies are wholly-owned by the Financial Secretary Incorporated (FSI).

In March last year, the Financial Secretary announced in his Budget speech the Government's intention to proceed with the development of the Cyberport at Telegraph Bay, Pokfulam. It is an important information infrastructure project which aims to attract to Hong Kong in the shortest possible time a strategic cluster of companies specializing in information technology (IT) applications and in information services (IS) and a critical mass of professional talents in the IT/IS field.

Apart from the Cyberport Portion, the developer will also construct a residential development (Residential Portion) to generate revenue to drive the project.

Since the announcement of the Cyberport project, Hong Kong has made significant progress in its development as a regional information technology and information services centre. In particular, Hong Kong has attracted a lot of interest from international IT companies to invest here.

To date, 15 multinational companies including IBM, Cisco, Microsoft, Sybase, Hewlett Packard, Yahoo! etc, have signed letters of intent to become anchor tenants. Another 105 companies, local and overseas, have registered interest to become tenants.

The spokesman said the Project Agreement provided a legally binding contract for the whole project period which would last from the commencement of the construction of the Cyberport in mid-2000 to the sale of all units in the Residential Portion up to mid-2007.

"It covers many detailed issues relating to construction, financing arrangements, sales of residential units, application of the sales proceeds, intellectual property rights, and so on.

"The discussion with Pacific Century Group (PCG) has taken about eight months. We have arrived at an agreed version of the Project Agreement in a form acceptable to the Government : a detailed, legally binding contract which sets out clearly our controls and PCG's obligations in all aspects," he added.

The main points of the Project Agreement are summarized as follows:

* the Project is owned by the Government (through the three FSI-owned companies set up for undertaking the Project). The land and all the Intellectual Property (IP) already created or to be created for the Project are absolutely owned by the FSI companies;

* PCG should bear all the constructions risks by guaranteeing to the FSI companies that the Project will be constructed in accordance with the pre-approved design and specifications, according to the pre-agreed timetable and at a fixed price. The fixed price is $15.8 billion at the Money of Day (MOD) Prices, and the Developer will pay any cost overrun from its own resources (as a PCCW Expense);

* PCG should take on all the financing risks. Before sales proceeds are made available to meet the project expenses, PCG should make capital contribution to the Project out of its own resources and/or raise Project Level Debt. In any case, the Developer will need to provide an ongoing six-monthly cashflow guarantee in advance at any point in time throughout the Project;

* PCG should procure the sale of the Residential Portion in accordance with the arrangements to be approved by the FSI companies, but the sales proceeds should be held in an "A" rated bank and managed by an independent Security Trustee strictly in accordance with the prescribed manner and order;

* PCG should protect the interests of the FSI companies by providing an extensive range of guarantees, warranties undertakings and indemnities;

* an extensive range of events of default are included in the Project Agreement, such as insolvency, non-payment, and any breach of other obligations under the Project Agreement. The Developer is required to remedy its breaches within the specified grace periods out of its own resources (as a PCCW Expense) and to reimburse the FSI companies for any cost/loss incurred as a result of its breaches (again as a PCCW Expense). If any of the breaches is not remedied by the Developer within the specified period, the FSI companies may terminate the Project Agreement; and

* PCG should pay a range of expenses (e.g. the Developer's tax, the cost of providing the six-monthly cashflow guarantee, and cost of its capital contribution) out of PCG's own resources.

The spokesman stressed that the Project Agreement was consistent with the Letter of Intent (LOI) that the Government signed with Pacific Century Group last year. It has set out the detailed arrangements for the development of the Project and contains adequate safeguards to protect the interest of the Government and that of the general public.

"In negotiating the details, we managed to arrive at new terms which are in our favour," he said. "For example, the Project Agreement includes terms on intellectual property ownership, tax liabilities and the extent of warranties, undertaking, and the remedies made available to the Government under different events of default and upon termination of the Project Agreement, all of which protect Government's interests. In view of the substantial interest from IT/IS companies in becoming tenants, the Government has decided not to pursue the take-up guarantee offered by PCG at the LOI stage."

The FSI companies will be in a position to grant the Development Right to the Developer soon, upon receipt of the conditions precedent specified in the Project Agreement, such as receipt of the Cashflow Guarantee and acceptance of the concept design, etc. "We expect this to take place in early June," the spokesman noted.

The Residential Portion Land Value will be assessed by the Lands Department on the date of the grant of the Development Right. The Residential Portion Land Value will be used in determining Government's equity contribution to the Cyberport project for the purpose of calculating Government's share of surplus sales proceeds under the Project Agreement. Both parties have to recover their respective contributions from sharing the surplus sales proceeds after the sales proceeds have been applied to meet other agreed project expenses.

"The Government however will be able to receive the constructed Cyberport asset in phases in three consecutive years starting end 2001. The Cyberport is estimated to cost $6.1 billion at MOD prices," the spokesman added.

End/Wednesday, May 17, 2000

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