FCR(1999-2000)14

For discussion
on 21 May 1999
ITEM FOR FINANCE COMMITTEE
LOAN FUND
HEAD 274 - TOURISM
New Subhead "Ocean Park Lowland Redevelopment Fund"
Members are invited to approve the creation oI a new subhead "Ocean Park Lowland Redevelopment Fund" under Head 274 Tourism under the Loan Fund, with a
commitment oI $500 million to provide a loan Iacility Ior the Ocean Park Corporation to improve its recreation and education Iacilities.
PROBLEM
The Ocean Park Corporation (OPC) seeks a $500 million loan to Iinance the acceleration oI the construction oI "Adventure Bay" in its Lowland Redevelopment Project (the
Redevelopment).
PROPOSAL
2. We propose to provide a loan Iacility oI $500 million to the OPC Ior a period oI 15 years with interest at 5 per annum on the outstanding balance.
1USTIFICATION
3. Ocean Park has been in operation Ior 22 years and during that time it has become one oI the major attractions Ior both Hong Kong residents and international visitors.
However, in recent years, it has become necessary Ior Ocean Park to maintain its competitive position, particularly vis- -vis those theme parks that spring up in neighbouring
areas in the past Iew years. Also, with the increasing number oI water parks being introduced by the Municipal Councils, the appeal oI "Water World" has diminished and
annual attendance is now on average 30 below capacity. "Water World" occupies a large portion oI the Lowland and is only open Ior business Ior 120 days a year.
4. The OPC intends to redevelop the Lowland. The Redevelopment aims to provide new recreation and education Iacilities to stimulate repeat visitations, to draw more
tourists to Hong Kong and to encourage interest in environmental conservation. The Redevelopment project entails closing "Water World" and improving the utilisation oI the
Lowland area with, inter alia, an interactive "dark" ride, an expansion oI "Kids' World" and a major new theme area called "Adventure Bay". The OPC plans to complete the
Redevelopment by 2009 at a cost oI $1.2 billion (money-oI-the-day (MOD)). The OPC has commenced the Redevelopment and has Iunded "Sea Lion Fun Time" and "Film
Fantasia" with cashIlow Irom operations. The Hong Kong Jockey Club co-Iunded the "Giant Panda Habitat".
5. The OPC proposes to accelerate - Irom 2005 to 2002 - the completion oI "Adventure Bay", which is estimated to cost $527 million (MOD), with a $500 million loan Irom
the Government. "Adventure Bay" will include a new world-class marine mammal Iacility, an exciting new water ride and a seaport-style village. It will oIIer live
entertainment, recreational Iacilities, educational exhibits and programmes, and venues Ior dining, shopping and relaxation, providing ample opportunities Ior both day and
night operations.
6. With the completion oI "Adventure Bay", the Park expects that the ratio oI tourists to local visitors will increase Irom the present 3:7 to 3.5:6.5 in 2002-03 and eventually to
4:6. The number oI tourists visiting the Park is expected to rise Irom an annual average oI 822 000 over the past Iive years to 1.4 million in 2002-03. Surveys by the Hong
Kong Tourist Association (HKTA) have shown that tourists who visit Ocean Park typically spend an extra 1.2 nights in Hong Kong. Given that the average tourist spends
about $1,600 daily, on this basis the Park, aIter redevelopment, would help to bring some $2.7 billion (at 1998 price levels) tourism receipts to Hong Kong by 2002-03.
7. The Redevelopment will strengthen Ocean Park's attractiveness to locals and international visitors and draw Iocus on Hong Kong's eIIorts on conservation. Economic
beneIits emanating Irom the Redevelopment include tourism receipts brought about by the increased visitor arrivals or extended stays, and income and employment generated
Ior the local economy Irom tourism and increased business Ior Ocean Park's service providers and Iranchisees. The project is expected to generate 88 new permanent jobs
when "Adventure Bay" is opened in 2002, and 330 temporary positions during the three years oI construction.
Terms and Conditions of the Loan
Proposed drawdown schedule
8. The loan Iacility will be available Ior a period oI 15 years with interest charged at 5 per annum on the outstanding amount oI the loan. The loan would be drawn down as
required. A tentative draw-down schedule based on the projected Iunding requirement oI the Redevelopment Project is shown below -
($ million)
Main attractions of "Adventure Bay" 1999-2000 2000-01 2001-02 2002-03
Marine Mammal Attraction 26 110 200 39
Water Ride 3 20 30 10
Food and Retail 4 18 30 10
Total ($500 million) 33 148 260 59
Interest rate
9. The proposed interest rate oI 5 per annum is a concessionary rate charged on loans under the Loan Fund to statutory bodies or organisations delivering public services.
The OPC is a non-proIit making statutory body with a mandate to provide a balanced mix oI recreation, education and conservation Iacilities to the public on a selI-Iinancing
basis. A higher interest rate would increase Ocean Park's cost oI operation and reduce the amount oI Iunds available Ior Iuture development projects.
10. We have provided loans at this concessionary rate to other statutory bodies such as the Hong Kong Housing Society to provide aIIordable housing and to the HKTA to set
up the International Events Fund to promote tourism.
Repayment terms
11. The OPC will be required to repay the loan by ten equal instalments oI $50 million each, plus interest, due on 30 June each year Irom 2004, one year aIter the Iinal
drawdown. The Iirst instalment would be due on 30 June 2004. With the prior approval oI the Financial Secretary, the OPC may amend the repayment schedule or extend the
loan repayment period.
Alternative Sources of Financing
Finance Committee (Papers) 21 May 99 http://www.legco.gov.hk/yr98-99/english/Ic/Ic/papers/Ic210514.htm
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12. Ocean Park has considered other sources oI Iinancing Ior this redevelopment project. These options include soliciting commercial sponsorship Ior the new Iacility as well
as borrowing Irom commercial banks. However, neither oI these represent a viable alternative. A review oI the sponsorship option clearly demonstrates that the long
construction time would not provide the immediate major publicity and marketing opportunities that companies require as part oI their sponsorship programmes. This has
been conIirmed by an internationally recognized consultant who is an expert on these matters. Commercial borrowing is not a viable option because commercial interest rates
would require the diversion oI a signiIicant level oI operating cashIlow that is otherwise required to develop additional recreational and educational Iacilities. Also, it is
unlikely that commercial banks would be willing to provide such a substantial loan without security. For Ocean Park, the only property which could be used as security would
be special purpose equipment and buildings. It is unlikely that they would be given a high loan value by the banks.
FINANCIAL IMPLICATIONS
13. The proposed loan Iacility is an one-oII commitment. There are no recurrent Iinancial implications. As the Government would charge the OPC interest at the
concessionary rate oI 5 per annum on the loan, the net present value oI maximum interest Iorgone discounted at the current "no-gain, no-loss" interest rate would be $38
million.
Consultation
14. We brieIed the Legislative Council Panel on Home AIIairs on 10 May 1999 on the proposal. Additional inIormation is provided as Iollows in response to Members'
enquiries -
a higher interest rate would impose an additional Iinancial burden on the OPC and divert the Corporation's cashIlow which could, otherwise, be used to develop
additional recreational and educational Iacilities and promote environmental conservation. The OPC's mandate is to provide a balanced mix oI recreation, education
and conservation Iacilities to the public. At the same time, the Corporation is expected to maintain Iinancial viability. Moreover, many oI the OPC's operating policies
and services oIIered to the public have been developed Irom non-commercial considerations, including Iree admission to seniors, heavily subsidized on-site
educational tour programmes, Iree outreach educational programmes, administration and Iunding support to conservation activities, and low admission rates Ior
welIare and student groups. The purpose oI the OPC's request Ior the loan is to advance its "Adventure Bay" development in order to help stimulate the economy and
revitalize the tourism industry. The Government's earlier loan to the HKTA was made Ior a similar purpose. ThereIore, it would be equitable to charge the OPC the
same interest rate as the HKTA;
1.
the reasons Ior the OPC not borrowing money Irom commercial banks are set out in paragraph 12 above. Moreover, the OPC is a non-proIit-making public
corporation. Unlike a commercial operation, the Corporation also provides public services as set out in sub-paragraph (a) above;
2.
the Iorecast oI attendance at Ocean Park has been made on the assumption that the Park will continue to operate in a stable economic environment and that it will
maintain an appeal in both the local and tourist markets through its Iocused marketing strategy and continued investment in new attractions. Historically, attendance at
the Park grew at an annual average rate oI 6 over the last ten years.
The Park expects attendance to grow at a Iaster rate with the accelerated new development. Despite the recent downturn in tourism, the industry is expected to grow at
a steady rate over the long term, and Ocean Park will stand to beneIit Irom the increase. A recent HKTA visitor survey also indicates that there is potential Ior Ocean
Park to extend its market share Iurther among visitors to Hong Kong;
3.
Ocean Park has a proven track record oI managing its Iinances on a prudent basis. Following the Iormation oI the OPC as a statutory body in 1987, the Corporation
has remained Iinancially selI-suIIicient. It has not required any subsidies Irom the Government or any other sources to Iund its operations. Except Ior the year
1997-98, the OPC has generated operating surpluses every year, and these surpluses have been reinvested into the Park to develop its Iacilities Iurther, to upgrade the
quality oI its guest services and to promote environmental conservation. Even in 1997-98, when the Park incurred a deIicit as a result oI a number oI external Iactors,
including the Asian Iinancial crisis, the slowdown oI the local economy and unIavourable weather conditions, the Park was still able to achieve a break-even on
cashIlow Ior operating activities without raising the admission price above the 1991 level. The OPC will continue to adopt a prudent practice oI managing its business
in order to secure a stable and healthy Iinancial position. The Corporation also strongly believes that the introduction oI "Adventure Bay" will Iurther strengthen the
Park as a preIerred recreational and educational venue Ior local residents as well as a must-see destination Ior overseas visitors. The revenue generated in the years to
come will not only ensure that the loan can be repaid but also enable the Park to continue its reinvestment programme to provide more updated recreational and
educational Iacilities to the public; and
4.
the Lowland Redevelopment Project would cost approximately $1.2 billion over the next ten years. Within the next six years, the cost would be $885 million.
The $500 million loan will be used to Iinance the "Adventure Bay" development, which is estimated to cost $527 million. The OPC has an experienced team oI
project development staII who would monitor and work closely with outside consultants to ensure that the project is completed on budget and on a timely basis.
5.
BACKGROUND INFORMATION
15. Ocean Park was oIIicially opened to the public in 1977. Its construction was Iunded by the Hong Kong Jockey Club on land provided Iree by the Government. On 1 July
1987, Ocean Park ceased to be a subsidiary oI the Hong Kong Jockey Club and became an independent non-proIit-making body, the OPC. The Corporation is a statutory body
incorporated under the Ocean Park Corporation Ordinance, (Cap. 388). The Corporation's operations are overseen by a Board appointed by the ChieI Executive. Pursuant to
the Ocean Park Corporation Ordinance, the Iunctions oI the Corporation are -
to manage and control Ocean Park as a public recreational and educational park; 1.
to provide at Ocean Park recreational and educational Iacilities and other related Iacilities as it thinks Iit; 2.
to develop Ocean Park Ior the purposes oI recreation and education generally in such manner as it thinks Iit; and 3.
to apply its proIits howsoever derived towards the promotion oI its Iunctions speciIied in paragraphs (a), (b) and (c). 4.
16. The Board oI the OPC has approved the Lowland Redevelopment Project which entails the closure oI "Water World" and the redevelopment oI the greater part oI the
Park's Lowland Area into an "Adventure Bay". The Lowland Redevelopment will also include other attractions. A copy oI the redevelopment plan is at the Enclosure.
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Home AIIairs Bureau
May 1999
Finance Committee (Papers) 21 May 99 http://www.legco.gov.hk/yr98-99/english/Ic/Ic/papers/Ic210514.htm
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