Annual Report 2015
RISK FACTORS
227
B. RISK RELATING TO FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(continued)
5. Properties developed by the Group for sales in the PRC are subject to Land Appreciation Tax (“LAT”). LAT is
calculated based on proceeds received from the sale of properties less deductible expenditures as provided in
the relevant tax laws. Pending settlement with the relevant tax authorities, we make provisions for the amount
of LAT in accordance with the relevant PRC tax laws and regulations from time to time. Provisions for LAT
are made on the Group’s own estimates based on, among other things, its own apportionment of deductible
expenses which is subject to final confirmation by the relevant tax authorities upon settlement of the LAT.
The Group only prepays a portion of such provisions each year as required by the local tax authorities. The
Group cannot assure that the relevant tax authorities will agree with its calculation of LAT, nor can it assure
that the LAT provisions will be sufficient to cover its LAT obligations in respect of its past LAT liabilities in
relation to its combined property business. If the relevant tax authorities determine that its LAT exceed the
LAT prepayments and provisions, and seek to collect that excess amount, the Group’s cash flow, results of
operations and financial may be materially and adversely affected. As there are uncertainties as to when the
tax authorities will enforce the LAT collection and whether it will apply the LAT collection retrospectively to
properties sold before the enforcement, any payment as a result of the enforcement of LAT collection may
significantly restrict the Group’s cash flow position, its ability to finance its land acquisitions and to execute its
business plans.
6. The results of the Group are presented in Hong Kong dollars, but its various subsidiaries, joint ventures and
associated companies may receive turnover and incur expenses in other currencies. Any currency fluctuations
on translation of the accounts of these subsidiaries, joint ventures and associated companies and also on
the repatriation of earnings, equity investments and loans may therefore impact on the Group’s businesses.
Exchange rate of Hong Kong dollar against RMB or other foreign currencies are affected by, among other
things, changes in the political and economic environment of the issuing jurisdictions of the currencies. The
exchange rate of RMB against Hong Kong dollar, the US Dollar or other currencies may be re-valued, and
may be permitted to enter a full or limited free float. Such situation may result in appreciation or depreciation
in RMB against Hong Kong dollar, the US Dollar or other foreign currencies. Continual fluctuations in the
exchange rate of the Hong Kong dollar against RMB or other currencies may materially and adversely affect
the Group’s businesses, financial condition, results of operations and growth prospects.
7. In April 2013, State Administration of Foreign Exchange (“SAFE”) issued the Operation Guidelines for the
Administration of Foreign Debt (the “Guidelines”), which became effective on 13 May 2013. The Guidelines
stipulate that, amongst other things, (i) with respect to real estate enterprises with foreign investment who
obtained approval certificates from commercial authorities and registered with the Ministry of Commerce
on or after 1 June 2007, the branches of SAFE will no longer process the foreign debt registrations for such
enterprises, (ii) with respect to real estate enterprises with foreign investment established prior to 1 June
2007, such enterprises may borrow foreign debt in accordance with the relevant provisions in the Guidelines,
but the amount of foreign debt shall not exceed the surplus between the enterprise’s total investment amount
and its registered capital (the “Surplus”); in the event that the enterprise increases its registered capital, and
the Surplus after the increase of registered capital is less than the Surplus before the increase of registered
capital, then the amount of foreign debt of such enterprise shall not exceed the Surplus after the increase
of registered capital, and (iii) in the event that the registered capital of a real estate enterprise with foreign
investment is not paid in full, or such real estate enterprise with foreign investment does not obtain State-
owned land use rights certificate(s), or the capital for real estate projects to be developed is less than 35% of
the total investment amount of such projects, such real estate enterprise with foreign investment is prohibited
from borrowing foreign debt, and the branches of SAFE will not process the foreign debt registrations for such
enterprises. The Guidelines therefore restrict the ability of our PRC subsidiaries that are real estate enterprises
with foreign investment to raise funds offshore for the purpose of injecting such funds into the enterprises by
way of shareholder loans. The Group cannot assure that the PRC Government will not issue any new policy
that will further restrict the ability of the Group in allocating its funds in China.
