EXCLUSIVE: Chinese Developer Secures Crucial Refinancing After Missing Loan Repayments On Giant East London Scheme
The Chinese developer of a huge, almost empty east London office and mixed-use scheme has secured a new loan to refinance debt on which repayments were missed in 2020, Bisnow can reveal.
ABP is developing a 4.7M SF scheme on a 35-acre site on the Royal Albert Docks in east London. The 700K SF, 21-building first stage, primarily offices, was completed in summer 2019 at a cost of £300M, but has lain largely empty after failing to secure tenants.
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, and coming into the pandemic, only one leasing deal had been signed.
Accounts for the vehicle developing the first phase of the scheme — RAD Phase 1 Devco — highlight the financial impact this has had, including missing loan payments. The accounts cover the year to December 2019 but were signed off in October.
“Post year end the company failed to make certain repayments under loan agreements and the parent company is in discussion with the lender and other parties to renegotiate the terms,” the accounts said. “Furthermore, the parent company’s plans indicate that they need to raise further funds.”
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.
The company’s auditor, RPG Crouch Chapman, said this meant there was a “material uncertainty, which may cast significant doubt over the company’s ability to continue as a going concern.”
The accounts show that £62M of a £188M loan was due for repayment in 2020. The loan was provided by a consortium of five Chinese banks in 2018 and matures in 2023. The banks are CITIC Bank, Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China and China Construction Bank Corp.
CITIC is also the contractor on the scheme and a 10% shareholder in the project and provided a £70M mezzanine finance facility to fund construction of the first phase. It has a £222M construction contract relating to this phase.
ABP said in an emailed statement that Hang Seng had in the past week provided new debt to refinance the portion of the loan that was due for repayment in 2020. The bank provided £30M and ABP itself out in another £33M of capital.
“In the past week, the shareholders have arranged a £60M refinancing deal with Hang Seng Bank which further demonstrates the company’s commitment to the future of the project,” a spokesman said. “The refinancing will continue to support the project and allow us to meet the immediate loan repayments.”
The statement said the team signed four new leases since the last lockdown, including one for a full building, although it did not give details. It flagged a project first mooted last summer in which the company plans to build individual glass cubes for workers in the scheme in order to give staff confidence to come and work in the buildings.
“ABP London continues with confidence even in the face of the enormous challenges all businesses are dealing with because of the combination of the uncertainty of Brexit and the pandemic,” the statement said.
“These challenges did cause some delay on our scheme's progress but the shareholders have continued to fund the Royal Albert Dock project and to invest in its future, and late last year we embarked upon creating a new office product in the form of the new ‘Cube’ concept providing self-contained micro-offices. A new ‘Cube’ showroom floor is being created at a cost of several hundred thousand pounds and will be completed in the first quarter 2021 and targeted at attracting occupiers in the new post-pandemic business environment.
“Tenant occupancy rates have been slower than we would have wished but given these were brought about through the Brexit and the pandemic challenges we remain encouraged, and indeed four tenants for the new offices have signed up since the last lockdown began including one occupier to take a whole building. Viewings continue from prospective tenants but, again, in line with other developments, this is slower than we anticipated before the pandemic.
“We have great faith in this project and take a long-term view and our shareholders are committed to its future and we are preparing for phase two with work to begin later in 2021.”
The entire scheme will cost £1.7B, ABP previously said. ABP was chosen by the landowner, the Greater London Authority, to develop the site in 2013. The land was drawn down after proof of funds was received in 2017, and a signing ceremony for the scheme’s construction contract that year was attended by Chinese President Xi Jinping and then UK prime minister David Cameron. Subsequent phases of the scheme are set to include offices, residential and hotels.