Annual Report 2016
205
Risk Factors
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 Stateowned 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.
