June 30, 2009 / 4:43 AM / 9 years ago

UPDATE 3-Disney to pump $452 mln new funds into HK theme park

* Disney to invest $452 mln, convert loan to equity

* HK gov’t to swap debt for equity but inject no new funds

* Deal will leave HK as majority stakeholder with 52 pct

* Seen as necessary to compete with rival park in Shanghai (Adds Disney comment, details; changes byline, dateline)

By James Pomfret and Gina Keating

HONG KONG/LOS ANGELES, June 30 (Reuters) - Hong Kong said on Tuesday that Walt Disney Co (DIS.N) will invest $452 million to expand its Hong Kong theme park, seen as necessary to bolster the park’s long-term prospects against a planned rival park in Shanghai.

Hong Kong Chief Executive Donald Tsang said Hong Kong would not invest more capital in the joint venture but would convert a substantial part of its loan to the project into equity. He said Disney’s capital investment would be about HK$3.5 billion.

Disney will also convert the entire balance of its outstanding HK$2.76 billion loan to the theme park into equity.

Disney Parks spokeswoman Leslie Goodman said the company was pleased to have completed an agreement “that will benefit both parties” after two years of negotiations.

“The expansion deal will contribute to Hong Kong’s appeal as an international, family-friendly tourist destination and the resort’s long-term success,” Goodman said in a statement, adding that the company was eager to start work.

The expansion consists of 30 new attractions in three new “lands,” two of which will be exclusive to Hong Kong Disneyland for five years after opening, a source familiar with the plan said. The park will have exclusive rights in Asia to the third new “land” for five years, the source said.

The first area will take three years to complete and the next two will begin over the following two years with the entire expansion set for completion in 2014, the source said.

Hong Kong lawmakers are set to vote July 10 on the HK$3.63 billion deal to boost the park’s total area by 23 percent.

As part of the deal, Disney promised to boost transparency by disclosing its annual visitor figures and financial performance for the Hong Kong park. The first report is expected at the end of the park’s 2009 fiscal year.

SHANGHAI RIVAL

“In total this means that the Walt Disney Company will invest about HK$6.2 billion new capital in demonstration of the company’s confidence in Hong Kong Disneyland,” said Rita Lau, Hong Kong’s Secretary for Commerce and Economic Development.

After Disney’s new investment and the government’s debt-to-equity swap, Hong Kong will see its stake in the park fall to 52 percent from 57 percent in the theme park’s first major expansion since it opened to great fanfare in 2005.

Since then, however, the park’s performance has been sluggish, with attendance falling short of initial targets.

The government’s outstanding loan to the theme park is about HK$6.89 billion. After the conversion, this balance will not drop below HK$1 billion, the government said in a statement.

It said the expansion, with a mix of thrill rides, would “broaden the park’s appeal” and act as a “catalyst” in improving the park’s operating and financial performance.

“If there is no expansion, the attraction of the theme park will fall over time,” government economist Helen Chan said at a briefing to announce details of the long-awaited expansion.

The Hong Kong government desperately needs the expansion to boost flagging attendance, with a much larger rival Disneyland expected to be completed in Shanghai in 2014 — assuming it gets approval from the Chinese government — that could draw much visitor traffic from the burgeoning mainland China market.

Hong Kong is the smallest of Disney’s five resorts.

“We’re only increasing it (the size) by some 20 percent but the Shanghai Disneyland is going to be 10 times the size of Hong Kong Disneyland, how are we going to compete with them,” said lawmaker Emily Lau during a briefing on the plan.

But officials, who must still lobby lawmakers to green-light the deal, stressed the park’s unique attractions would bolster the park’s current reported attendance of about 4.5 million annually to between 5.2 million-8.4 million visitors by 2015 when the expansion is done.

“We often talk about uniqueness and exclusiveness and therefore it’s not just about the size,” said Hong Kong official Lau.

The total net economic benefit of the expanded theme park over 40 years would range from HK$64.7 billion to HK$117.3 billion, the government said, with the theme park having already added 0.2 percent to the city’s annual GDP since opening.

Editing by Muralikumar Anantharaman, Phil Berlowitz

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