CDL poised to raise South Beach stake to two thirds

Published 24 February 2011
The Business Times
By Kalpana Rashiwala

City Developments Limited (CDL) is set to raise its stake in the consortium developing the South Beach project. This comes after it exercised its right of first refusal to buy Dubai World’s one-third stake in the consortium and fulfilled conditions for the transaction, say sources.

CDL poised to raise South Beach stake to two thirds

CDL poised to raise South Beach stake to two thirds

This means CDL’s stake would now go up from one third previously to two thirds.

CDL, Dubai World and Elad Group teamed up to buy the 99-year leasehold landmark Beach Road site opposite Raffles Hotel from the Urban Redevelopment Authority for $1.69 billion in 2007. Each of them has an equal stake in the consortium.

Sources say that Dubai World and Elad have been looking for buyers for their stake. Consortium members have the right of first refusal to buy out partners wishing to exit.

BT understands that Dubai World was represented by Jones Lang LaSalle in the sale of its stake and when a buyer was sourced, CDL exercised its first right to purchase that stake.

Analysts estimate CDL could be paying about $150-170 million for Dubai World’s one-third stake. They arrived at this figure after taking into account a fall in the site’s value since 2007 as well as coupon payments on at least $400 million of high-yield secured convertible notes issued by the consortium earlier to CDL and Hong Kong’s Nan Fung group.

Separately, BT understands that arrangements have been made for a $1.8 billion financing package for the consortium, as it gets ready to begin construction of the project this year.

The facility is being granted by a syndicate comprising DBS Bank, United Overseas Bank, OCBC Bank, The Hongkong and Shanghai Banking Corporation and Sumitomo Mitsui Banking Corporation.

The South Beach consortium is expected to utilise $800 million of this new facility to repay an earlier land loan on the site granted to it by the same syndicate of banks in 2009.

The South Beach project – located between Raffles Hotel and Suntec City and next to the Esplanade MRT Station – was originally scheduled for completion by 2012 at a total development cost (including land) estimated at $2.5 billion.

However, in November 2008 – during the global financial crisis – CDL announced that construction would be deferred until building costs eased.

Under its agreement with URA, the consortium has up to nine years, or until around September 2016, to complete the project, that is, obtain Temporary Occupation Permit (TOP).

Based on information on the project in URA’s Q4 2010 publications, the South Beach consortium expects the project to receive TOP in 2015. The development will have 171 apartments, 560 hotel rooms, 632,164 sq ft and 158,014 sq ft gross floor area of office and retail space respectively.

All eyes are now on Elad. The US-based group, controlled by Yitzhak Tshuva, is said to have held discussions with Malaysia’s IOI Group and other parties, in a bid to find a buyer for its stake.

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