Nan Fung Group Invests In South Beach Project

Source : The Business Times, June 10, 2009

Entities linked to HK-based group pumping in $205m in refinancing deal

HONG KONG developer Nan Fung group has emerged as an investor in Singapore's South Beach project.

South Beach project: CDL will take a leading role for the project, which is on track to be completed by 2016

It will subscribe to $205 million of five-year secured convertible notes under a refinancing exercise for a $1.2 billion loan on the 3.5-hectare site. The plot was sold for almost $1.69 billion in 2007 during the property bull run to South Beach Consortium - a joint venture company equally owned by subsidiaries of City Developments Ltd (CDL), El-Ad Group and Dubai World.

The $1.2 billion loan that matures later this month will be refinanced by a combination of an $800 million two-year secured bank loan and $400 million of secured convertible notes.

A fully owned unit of CDL will subscribe for $195 million of the notes, with entities associated with the Nan Fung group of companies taking the rest. The notes may be converted into equity in the joint venture company any time during their five-year duration, subject to conditions and terms that have not been disclosed.

If CDL converts its notes, it will emerge as the leader of the consortium. And if Nan Fung follows suit, it will become a shareholder in the consortium.

The $800 million secured term-loan facility announced yesterday has been provided by a syndicate comprising DBS Bank, United Overseas Bank, OCBC Bank, The Hongkong and Shanghai Banking Corporation and Sumitomo Mitsui Banking Corporation (Singapore Branch).

These five banks plus Bank of Tokyo Mitsubishi provided the initial $1.2 billion bridging loan facility.

Market watchers note the smaller quantum of $800 million secured for the latest term loan. In a statement, South Beach Consortium noted the 'ongoing challenging credit environment in the global financial markets'.

In its full-year 2008 results statement released in February, CDL said a recent external valuation of the South Beach project was done and the conclusion is that no provision is required for impairment on the development.

It was in November last year that CDL first announced a deferment of construction of the project until construction costs ease.

The project was originally slated for completion by 2012. Under an agreement signed with the Singapore Government, from whom the consortium bought the 99-year leasehold site, the group has up to 2016 to complete the development. The consortium is now expected to begin construction by late next year.

In a filing with Singapore Exchange last night, CDL said: 'The consortium . . . is currently taking the opportunity to review and refine its plans for the development so as to maximise the immense potential of this sizeable prime site, making it even more efficient, while in the meantime noting that construction cost is expected to come down further.'

The project, designed by London-based Foster + Partners, will comprise two tower blocks and four conserved buildings housing offices, luxury hotels, retail space and residences.

In late 2007, CDL said that the project would cost some $2.5 billion in all, including the land cost.

CDL will take a leading role developing the South Beach project, which is on track to be completed by 2016, yesterday's statement said.

Talk surfaced last year that El-Ad and Dubai World were keen to offload their stakes in the project. However, the two yesterday confirmed their commitment to South Beach.

The consortium's winning bid of $1.69 billion for the plot in the public tender worked out to $1,069 per square foot of potential gross floor area and was reported to be about $500 million lower than the top bid, which was not even short-listed under the two-envelope evaluation system.

The Urban Redevelopment Authority evaluated the various concepts before looking at the price offered for the site.

The South Beach project will be Nan Fung's first major property investment here.

The group, set up by Chen Din-hwa, has a joint venture with Singapore's Metro group developing 1 Financial Street in Beijing. Mr Chen, who is in his 80s, made his early fortune in the textile business before moving into property.