Jihong Lu's black hole

He once dreamed of a $1.5 billion Britomart project. The former concert pianist is playing a different tune now, ANNE GIBSON reports.

Down at the bottom end of Auckland, the Britomart project is steaming ahead, but not as its former developer, Jihong Lu, once envisaged.

Mr Lu and Auckland mayor Les Mills dreamed of a a $1.5 billion mega-development for the site near the city's waterfront. But Mr Mills is no longer mayor, Mr Lu is bankrupt and work is now under way on a vastly scaled-back transport hub projected to cost just over $200 million.

Like Britomart, Mr Lu's business career did not turn out quite as he planned.

In the beginning, the diminutive entrepreneur wielded considerable influence in the city and courted the media as he proposed a property development scheme so grand Auckland had never seen anything like it. Today, he shuns publicity.

The former concert pianist came here from China, but always held that his arrival in this country was somewhat of an accident. He said once that the Beijing Central Conservatory of Music wanted to send him to Britain to study - but he never got there.

Mr Lu was born in 1964 in the central Chinese city of Wuhan, an industrial hub and the capital of the Hubei Province, with a population of 7.3 million people.

He moved from Wuhan to Beijing, which he left in the early 1980s with the intention of furthering his studies in Britain. But like many of Mr Lu's schemes, only part of it turned out the way he planned.

He got as far as Hong Kong and then turned south because he claimed his interest in New Zealand had been piqued by a friend working at Trade and Industry in Beijing and he was keen to come here.

His 1998 entry in the National Business Review Rich List pegs his arrival here as being in 1985. His interests had not yet turned to business and he came here to study music at Auckland and Victoria universities, it noted.

Throughout the late 1980s and 1990s, Mr Lu became involved in a number of projects - including a failed deal for the Chinese Government to buy New Zealand Steel and a stint as managing director of Minmetals, a Chinese Government-owned organisation.

He became involved with the Auckland Institute of Studies and it was about this time that he met the woman he would marry, Yoshie Ikatura. She was reported to be from a wealthy Japanese family and to have provided Mr Lu with some useful business contacts.

By the mid-1990s, Mr Lu's star was rising.

About the same time the Auckland City Council had bought a collection of historic buildings on 3.5 ha in downtown Auckland, which it planned to turn into a bus and rail transport centre. A scheme was devised to build 11 large buildings with hotels, apartments and offices - a vision which horrified even the property investment sector, which was worried about cost blowouts and over-development.

The council could not find foreign developers prepared to take on the enormous risk of such a grand plan, so although he had little experience with large commercial developments, Mr Lu put his hand up and his company Savoy Equities - formerly Parapine Timber and Counterpoint Equities - became involved.

This was the height of Mr Lu's career here, when his fortune was estimated to be at least $10 million.

He lived in a palatial Remuera manor with his wife, Mozart the cat and Haydn the dog.

Estimates of his wealth rose to $12 million a year later, but pulled up sharp at that point.

The NBR entry in 2000 noted that due to "considerable speculation over Lu's actual and reputed wealth, his minimum net worth in this year's Rich List remains the same as last year's".

His estimated fortune was not the only thing standing still. Britomart was also frozen, amid public debate and calls for a rethink.

Questions were being asked about the scheme's viability, the costs, and whether the city needed that many new buildings, especially on the waterfront.

With a new council in office, mayor Christine Fletcher was keen to display goodwill over the contractual components of the deal, but at the same time had doubts about the contract signed in 1996 between the council and the project's financiers, Sydney-based NatWest Capital Markets.

Contractual arrangements were in place with Britomart Developments and Britomart Investments, companies controlled by Mr Lu, but his relationship with the new council hit the rocks in the late 1990s.

Eventually Savoy's Britomart deal was cancelled because, Mrs Fletcher said, Savoy was unable to provide proof that it had enough money for the project.

The company screamed blue murder over the council's actions and vowed to sue for $100 million - an action which never started.

Others were beginning to wonder how much money Mr Lu had.

But by then Savoy was listed on the sharemarket, having persuaded nearly 3000 investors to buy in because it had secured the potentially lucrative Britomart job.

A note of irony was struck in November 1999, when the Broadcasting Standards Authority censured Auckland's present mayor, John Banks, for verbally savaging Mr Lu on his Radio Pacific breakfast show.

"We don't want to pour our money down your loo, Mr Lu," Mr Banks snarled, expressing contempt for a scheme which he still has doubts about even in its scaled-back format.

It was around this time that Mr Lu's finances began to unravel.

In June 1999, a Malaysian engineering firm, MESB Berhad, won summary judgment against Mr Lu on a $2.3 million debt, an amount which included costs and interest.

It claimed it had paid him a $2 million deposit on shares he held in New Zealand telecommunications company SmarTel, but the agreement had come unstuck and the firm wanted its money out.


Four months later, the Kuala Lumpur firm had Mr Lu declared bankrupt, forcing him to resign his directorship with Savoy Equities and other companies, even though Mr Lu's lawyer said his client had at least $10 million and could pay if he wished.

But Master Thomas Kennedy-Grant decided differently in November 2000, saying he was not convinced Mr Lu had the assets he claimed.

Last year Savoy reported a loss of $77.1 million for 2000. It said it still wanted to sue the council for terminating the Britomart development.

In Savoy's annual report last year chief executive officer Kerry Haycock wrote: "In early April 2000, directors redeemed 75 per cent of the redeemable shares issued in respect of the Britomart project and converted the balance to ordinary shares.

"The directors carefully reviewed the remaining assets of the company, including the intangible assets relating to the Britomart project.

"Realisation of this asset will only crystallise on the completion of a successful litigation against the Auckland City Council.

"Directors have written down this asset in the accounts until such time as actual realisation has been achieved.

"However, this does not in any way mean the company has changed its view of the prospects for the success of this claim."

Later last year, the Official Assignee's office released a report on Mr Lu which revealed creditors were claiming more than $15 million from him, but that he had assets of only $100,000.

He appeared in the High Court at Auckland in October and was questioned by lawyers acting for the Official Assignee about share deals, matrimonial property agreements and the movement of money.

Lawyers for the Official Assignee's office conducted an oral examination of Mr Lu about his bankruptcy. Other parties involved are John Land and Paul Buetow of KPMG Legal, representing MESB Berhad as a creditor.

Mr Buetow said MESB is claiming more than $3 million.
The oral examination was adjourned late last year, but Mr Buetow said last month that he hoped it would continue early this year.

Quotable Value lists Mr Lu and his wife as owning a $2.6 million luxury mansion at 93 Benson Rd in Remuera, although this is only the rateable value and the house is estimated to be worth close to $5 million.

Although creditors hoped the house would be sold, Yoshie Ikatura said this week that she and Mr Lu still lived there and, while it had been up for sale last year "it no longer is".

Analysing Mr Lu's record, Business Herald columnist Brian Gaynor said Auckland ratepayers were fortunate that Mr Lu was no longer involved in the Britomart project. Should Mr Lu show his face again on the listed company scene, Gaynor said, investors should give him a wide berth.

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