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The following is issued on behalf of the Housing Authority:

The Housing Authority today (24 July) approved a plan to divest its retail and car-parking (RC) facilities. Under this plan, the Authority will transfer ownership and management of the RC facilities to a new company, which will be listed on the Stock Exchange of Hong Kong through an Initial Public Offering (IPO) in 2004/05. After the IPO, the Authority will not hold any share in this new company.

The divestment of the Authority's commercial facilities, including retail properties of one million square meters and 100,000 car-parking spaces, would enable the Authority to focus on its primary mission to provide subsidized housing to people in need.

The move is consistent with the Government's policy commitment to "free market" and "small government," said the Authority Chairman, Mr Michael Suen.

Proceeds from the divestment, initially estimated at more than $20 billion, will help the Authority to tide over its serious financial difficulties until 2007. This would provide a window for the Authority to pursue a range of cost-saving initiatives to achieve financial sustainability in the longer term, Mr Suen added.

The Authority is currently faced with cash flow deficit each year. Its cash balance is forecast to decrease from $28 billion in April 2003 to minus $5.5 billion in March 2006. This is the result of cessation of sale of the Authority's Home Ownership Scheme and Tenant Purchase Scheme flats following a major change in Government's housing policy last November.

Although the Government is entitled to 50 percent of the net operating surplus generated from the Authority's non-domestic operations, the Government has agreed in principle to allow the Authority to retain all the net proceeds from the divestment.

According to the divestment strategy now approved, the company to be established will have features similar to those of a real estate investment trust (REIT), namely, a focused business strategy; a clear dividend policy that pays out the majority of the net earnings; a conservative gearing policy; and restrictions on speculative development. This will enable the IPO to fetch a price close to the company's net asset value, unlike IPO of traditional property companies where shares are usually offered at a substantial discount to asset value.

"This strategy is desirable, considering the higher proceeds to be generated from the divestment and its minimal impact on the local property market", Mr Suen added.

"We will not rule out the possibility of establishing a REIT instead of a company with REIT-like characteristics, after regulations governing REITs are promulgated," he noted.

While contemplating the merits of the divestment, the Authority is mindful of its effects on some 700 Housing Department staff who are now involved in managing the RC facilities, as well as the Authority's 15,000 commercial tenants and 600,000-plus domestic tenants.

The Department will work with staff in developing appropriate arrangements for re-deployment of affected staff to other duties and for joining the new company.

Commercial and domestic tenants are likely to benefit from the change to private ownership and management of the RC facilities, as it will bring about enhanced quality, improved services and faster response to customer demand.

"The Authority will listen to views and concerns of the tenants in working out details of the divestment plan," Mr Suen remarked.

End/Thursday, July 24, 2003

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