Swire Pacific Limited

As previously announced on 14 January 2000, Swire Properties Ltd. (Swire Properties), a wholly-owned subsidiary of Swire Pacific Limited, had received quantified details of a claim from the Hong Kong SAR Government Lands Department for payment of land premium and interest in relation to the construction of the Cityplaza Four, Cityplaza Three and Cityplaza One office buildings and the Horizon Gardens residential development in Taikoo Shing completed in 1991, 1992, 1997 and 1986 respectively. Having taken separate legal advice from three leading counsel, Swire Properties did not accept that there was any liability, but it was agreed by both parties that the issue would be settled by arbitration.

The appointed arbitrator received written submissions and conducted a three week hearing in October 2000. The arbitrator has now published his findings.

The arbitrator held that Swire Properties was liable to pay premium and interest.

At the time of the previous announcement, the estimate of the maximum amount of Government's claim, including interest, was approximately HK$4,500 million.

The arbitrator has determined that the premium for Horizon Gardens is HK$151 million (plus interest yet to be determined) and this will be charged to the consolidated profit and loss account of Swire Pacific Limited for the year 2000.

The amount payable in respect of the office towers will be agreed between the parties and, failing agreement, will be assessed by independent experts. Such payment will be offset against the company's consolidated property valuation reserve and not against the profit and loss account. As reported in the Swire Pacific Limited 1999 Annual Report, the company's property valuation reserve showed a surplus of HK$30,755 million as of 31st December 1999.

Payment of the claim, once finalised, will be funded from the company's operating cash flows and credit facilities.

Mr. Keith Kerr, Managing Director of Swire Properties said, "We are naturally very disappointed. This was an extremely complex issue centred on a dispute about the interpretation of lease conditions related to specific buildings at Taikoo Shing. The buildings themselves were constructed fully in accordance with all relevant legislation, but there was a major difference of opinion regarding what, if any, premium should apply. Let me emphasize that there is absolutely no impact on other parties, including owners or tenants of the buildings concerned."

Mr. James Hughes-Hallett, Chairman of Swire Pacific Limited and Swire Properties Limited, added, "Despite this setback, Swire Pacific remains whole-heartedly committed to the property business in Hong Kong, and this will not impair our ability or interest in making further investments in the sector. More broadly, let me say clearly that there will be no impact on the company's strategic direction or growth plans going forward."

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