£1.7B Chinese-Backed London Scheme Hit With Debt Default And A Going Concern Warning
A company building the first phase of a huge £1.7B development in east London has defaulted on a loan and faces uncertainty about its ability to continue as a going concern.
The developer behind the 4.7M SF office-led mixed-use scheme at the Royal Albert Dock, east of Canary Wharf, needs to raise fresh funds and refinance a loan coming due imminently if it is to continue with the project, per accounts published this week.
The Royal Albert Dock scheme is being built by Chinese developer ABP on a 35-acre site it bought from the Greater London Authority in 2013. The project's first stage — 700K SF and 21-buildings consisting of primarily office — was largely completed in summer 2019 at a cost of £300M. Since then, it has sat almost empty after failing to secure tenants.
Accounts for the special purpose vehicle developing the first phase of the scheme, called RAD Phase 1 Devco, said that in the year ending December 2020, it defaulted on a bank loan made in 2018 by a group of Chinese banks headed by CITIC, which is also the contractor on the scheme and a 10% shareholder in the overall project.
When the loan was first made, there was £188M outstanding. That figure is now £98M, the accounts showed, which was due to be repaid by the end of 2021. CITIC is also owed £70M in the form of a mezzanine loan it provided to fund the construction of the first phase, which cost about £300M.
The company was reliant on support from its parent company to continue to operate, the accounts added. The parent company is Dauphin Holdings Group, a company registered in the British Virgin Islands and owned by ABP founder Xu Weiping and his daughter, Nancy Xu.
But Dauphin itself needed to raise further funds, the accounts said, whilst continuing talks to refinance the loans secured against the first phase of the scheme.
The accounts said the company was confident of raising fresh funds and securing either a refinancing or new debt, but no agreement was in place when the accounts were signed off in December 2021.
“These factors indicate the existence of a material uncertainty which may cast significant doubt about the company’s ability to continue as a going concern,” the accounts said.
React News reported in December that ABP was looking to bring in a partner to complete development of the scheme, and that there was now legal action underway regarding outstanding payments between ABP and CITIC. There are five remaining phases to come.
ABP London CEO Nancy Xu told the website ABP could sell a controlling stake in the scheme.
ABP’s strategy was to sell some of the buildings to owner-occupiers to bring in capital and lease some of the space to provide recurring income. Buyers and tenants from China were the original target when the scheme was conceived in 2013.
But uncertainty created by Brexit, the cooling of Anglo-Sino relations and then the impact of the coronavirus meant no sales were made. Coming into the pandemic, only one leasing deal had been signed.
The accounts said that no building sales to external parties had been made during 2020 or 2021, but that six buildings had been sold to a related party for £60M.