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Business Week Magazine

 

Hong Kong's Cyberport

Miss Annie Tam, Deputy Secretary, Information Technology and Broadcasting Bureau, Government of the HKSAR

Introduction

Information technology (IT) is advancing very fast and there is also rapid convergence of IT, telecommunications and multi-media content creation.  This new course of developments puts almost everyone at the starting point in a new race where the focus is on applications, services and content.  The Government of the Hong Kong Special Administration Region (the Government) has made a firm commitment to drive ahead in the new IT race.  We are working hard to build up Hong Kong as a leading digital city in the globally connected world.  The Cyberport project is an important information infrastructure in this overall strategy.

What is the Cyberport ?

When announcing our intention to proceed with the Cyberport development in the Legislative Council in March 1999, our Financial Secretary, Mr Donald Tsang said :

The Cyberport will provide the essential infrastructure for the formation of a strategic cluster of information services companies.  These companies would specialise in the development of services and multi-media content to support businesses and industries ranging from financial services, through trading, advertising and entertainment to communications”.

The infrastructure to be provided in the Cyberport will take the form of a high quality working and living environment, supported by state-of-the-art telecommunications infrastructure, sophisticated IT services and a range of recreational and entertainment facilities .  This is not just an ideal place for big multinational corporations to locate their regional base.  Smaller companies will also benefit from working in close proximity to those multinational corporations.  These companies will cluster together within the Cyberport and bring along a critical mass of professional talents with them.  These like-minded companies and professionals will form a professional community and will exchange ideas, expertise and unleash creative synergy within the Cyberport.

Cyberport Site

The Cyberport will be located at Telegraph Bay on the western shores of Hong Kong Island.  This was the site where the first submarine telegraphic cables were laid many years ago connecting Hong Kong to Singapore, Vietnam, the Philippines and ports in Mainland China and hence the name “Telegraph Bay”.  This was also where the first Bauhinia Blakeana was founded by the fathers of the French Mission in Hong Kong many years ago.  Bauhinia Blakeana is now Hong Kong’s city flower.

The Cyberport development area occupies 24 hectares of sea-facing land, located within the quiet and pleasant Pokfulam area.  We are building roads to connect the Cyberport site with the external traffic system, so as to make sure that it is conveniently linked to the rest of Hong Kong.  It takes us only 15 minutes to travel from the Cyberport site to Central and 45 minutes to the Airport at Chek Lap Kok.

Design of the Cyberport

This is the artistic impression of the recently approved Master Layout Plan for the Cyberport project :

 

The office component comprises a main office tower and a long, linear, low rise office block running through the Cyberport site.

The main office tower and the linear office building open at the podium deck to a large, campus like green environment.  This design provides for a continuous building form that allows greater flexibility to accommodate different sizes of tenants.  This reflects also our other three main planning considerations:

• balance between nature and technology;
• interactive community of offices, residential and commercial facilities; and
• state-of-the-art facilities and amenities.

At the lowest level linear office block will be an IT street.  This will be a continuous elevated street to be filled with shared facilities, cafes and other areas of interaction.  Next to it is a dome like building, referred to as “Cybermall”.  This is a hallmark of the Cyberport.  It is a retail, entertainment and educational complex.  It will also provide a convenient location to showcase the products of the Cyberport tenants.

The Cyberport, when completed, will be able to provide about 100,000 square metres of office space to be leased to IT companies and a range of facilities and residential accommodation (the Cybermall, a hotel, serviced apartments, residential flats, and houses).  It is essential that these companies can benefit from fast transactions of large volumes of data and information within and outside the Cyberport.  We will therefore provide within the Cyberport a state-of-the-art optical fibre network and a broadband facility with high speed access to other places.

We will also provide intelligent offices equipped with a flexible structured cabling infrastructure and a wide range of IT and telecommunications support systems and services.  There will be a range of shared facilities for use of the companies in the Cyberport, such as a content centre, a cyber library, a multimedia laboratory and demonstration facilities, etc.  We are exploring the feasibility of setting up an interface with local and overseas educational and research institutions.  We will also explore with the universities the possibility of other co-operation opportunities.

The Developer

We believe the Cyberport project should be developed by a private sector developer who is committed to becoming an anchor tenant.  This developer will have a continuing interest in making the Cyberport a success.  As a means to generate revenue to drive the Project, we also require the private sector developer to construct a residential development  next to the Cyberport at a slower time (to be completed in 2004 to 2007) and sell the units in the open market.  But this does not detract from the fact that the Cyberport is an information infrastructure project.  The grant of the residential development right on a part of the development area to the developer to generate revenue to drive the project is not unique in this case.  This arrangement has been adopted in other infrastructural projects in Hong Kong, such as the construction of the railways.

The Government has recently signed (on 17 May 2000) the Cyberport Project Agreement with Pacific Century CyberWorks (PCCW) – a publicly company in Hong Kong – and Cyber-Port limited, a special purpose vehicle set up under PCCW to perform the role of Cyberport developer (the Developer).  On the part of the Government, the Project Agreement was signed by the three limited companies set up by us to implement the Cyberport project.  They are the Hong Kong Cyberport Development Holdings Limited and its two subsidiaries: Hong Kong Cyberport Management Company Limited and Hong Kong Cyberport (Ancillary Development) Limited.  These three companies are wholly owned by the Financial Secretary Incorporated (“FSI” companies). 

The Project Agreement provides a detailed, legally binding contract for the whole project period which will last from the commencement of the Cyberport works (mid-2000) to completion of the sale of all the units in the Residential Portion (at least up to mid-2007).  The main points are summarized as follows:

1. the Project is owned by the Government (through the three FSI-owned companies set up for undertaking the Project).  The land and all the Intellectual Property already created or to be created for the Project are absolutely owned by the FSI companies;
2. the Developer should bear all the constructions risks by guaranteeing to the FSI companies that the Project will be constructed in accordance with the pre-approved design and specifications, according to the pre-agreed timetable and at a fixed price.  The fixed price is $15.8 billion Hong Kong dollars (about US$2 billion) at the Money of Day Prices, and the Developer will pay any cost overrun from its own resources (as a PCCW Expense); 
3. the Developer should take on all the financing risks. Before sales proceeds are made available to meet the project expenses, the Developer should make capital contribution to the Project out of its own resources and/or raise project level debt (by mortgaging against the Development Right).  In any case, the Developer will need to provide an ongoing six-monthly cashflow guarantee in advance at any point in time throughout the Project; 
4. the Developer is required to remedy breaches of its obligation within the specified grace periods out of its own resources (as a PCCW Expense) and to reimburse the FSI companies for any cost/loss incurred as a result of its breaches (again as a PCCW Expense).  If any of the breaches is not remedied by the Developer within the specified period, the FSI companies may terminate the Project Agreement; 
5. the Developer provides an extensive range of guarantees, warranties undertakings and indemnities, and will pay a range of expenses (e.g. the Developer’s tax, the cost of providing the six-monthly cashflow guarantee, and cost of its capital contribution) out of its own resources (as PCCW Expenses); and 
6. the Developer should procure the sale of the Residential Portion in accordance with the arrangements to be approved by the FSI companies, but the sales proceeds should be held in an “A” rated bank and managed by an independent security trustee strictly in accordance with the following manner and order:
   
   
   • first towards funding construction costs due and payable at the relevant time in respect of the Cyberport Portion and thereafter towards funding construction costs due and payable at the relevant time in respect of the Residential Portion; 
   • secondly towards establishing an amount adequate to cover the outstanding construction costs of the Project; 
   • thirdly towards repayment of project level debt and associated costs;
   • fourthly towards funding at least HK$200 million (over US$26 million) to cover the replacement costs of the shared facilities on the fifth year of operation of the Cyberport and the accumulated operating deficit of the first five years; 
   • fifthly towards funding other project expenses; and
   • thereafter, any balance will be distributed as surplus sales proceeds in accordance with the agreed percentages based on the respective contribution of the Government (which is the market value of the land earmarked for the development of the Residential Portion) and that of the Developer (which is its capital contribution towards the project).

The Project Agreement sets out the detailed arrangements for the development of the Project and contains adequate safeguards to protect the interest of the Government and that of the general public.

Development Plan

We are proceeding with the project quickly to ensure Hong Kong will stay ahead in the IT race.  The Cyberport is scheduled for completion in three phases, by end 2001/early 2001, end 2002 and end 2003, respectively.

Operation of the Cyberport

The Cyberport, when completed, will be handed back from the Developer to the Government.  The ownership and management rights over the Cyberport belong to the Government.  We have set up a private limited company, owned by the Financial Secretary Incorporated (FSI), to hold the title and operate the Cyberport (we have set up two other FSI-owned companies for the purpose of undertaking the Cyberport project).  The Government will operate the Cyberport in accordance with prudent commercial principles.    The office space and the residential units will be leased (not sold) to IT companies at competitive rents, which are comparable to the rents charged for similar developments elsewhere in the word.

Cyberport Tenant

We expect the Cyberport will be able to accommodate about 130 IT companies.  We have not yet commenced recruitment of tenants, but as at today (7 July 2000) a total of 148 companies, local and overseas, have on their initiative, registered interest with us to become Cyberport tenants.  Of those, 15 multinational corporations have signed letters of intent to become anchor tenants.  They are Cisco Systems, CMGI, Hewlett-Packard, Hikari Tsushin, Hua Wei, IBM, Legend, Microsoft, Oracle, Pacific Convergence Corporation, Portal, Silicon Graphics, Softbank, Sybase and Yahoo!.

The demand for office space in the Cyberport is to exceed supply.  To ensure a fair and transparent selection process, we will set up an international committee to advise us on tenant selection.  We expect to make appointments to this committee later this year and to establish/publish the admission criteria and application procedures in late 2000, in time for the occupation of phase 1 of the Cyberport by end 2001/early 2002.

We will turn to the international advisory committee later this year to seek advise on the selection process and the tenancy criteria.  Our preliminary tenancy criteria are :

 

• The focus will be on the information technology and information services sector. 
• Companies which introduce new, leading-edge applications of information technology to Hong Kong will be given most favourable consideration.
• Priority will also be given to companies which:

• provide services to enhance traditional services delivery (e.g. distant learning, securities trading and multimedia film production) or;
• provide essential services in support of global or regional business (e.g. software development) or;
• utilise the Cyberport as a hub of the global information infrastructure (e.g. corporate information network or customer service network).

In the meantime, we maintain close liaison with prospective tenants and other interested groups.  They have been informed of the latest developments of the Cyberport project through our quarterly newsletters and our website.  We organise discussion forums to collect comments on the detailed specifications of the Cyberport as well as the tenancy considerations and admission criteria.  An on-line chat room has been set up since February this year for those companies which have registered interest in becoming Cyberport tenants to chart among themselves and with us on the Project and other matters which may be of interest to them.  This startjumps the Cyberport atmosphere.

Conclusion

Our announcement to proceed with the Cyberport project has already enhanced Hong Kong’s position as an international IT centre and has also heightened local awareness of the importance of IT to Hong Kong.  The Project is proceeding well.  We are confident that it will be a success, benefiting from the clustering of quality IT companies and professional talents in a high quality working and living environment, while building on those advantages that we in Hong Kong are proud of : having an excellent telecommunications infrastructure; a bilingual speaking population; a business enabling environment; and being the natural gateway to Mainland China.  The Cyberport project is, and will continue to be, our flagship project to focus global attention on the investment opportunities in Hong Kong.

Miss Annie Tam, Deputy Secretary, Information Technology and Broadcasting Bureau, Government of the HKSAR