Land cost for the South Beach development, secured in a land tender in 2007, is $1,688.8 mln (reported to be $500 mln lower than the top bid). It was funded by $1.2 bln bridging loan and $489 mln equity from the 3 partners. The development, designed by Norman Foster (HSBC Building in HK), has to be completed by 2016.
Nan Fung is a privately owned company, founded by the 86-year-old Ningbo-born Chen Din Hwa, who is ranked the 9th richest man in HK. Nan Fung is reported to hold equity stakes in HK-listed Sino Land, Lai Sun, and has a joint venture with Metro Holdings.
1. We believe the refinancing is positive news, largely because the new investor, an old hand in properties, is prepared to invest literally at the “original” land cost of $1.7 bln. Nan Fung will end up with about 23% equity stake upon conversion. (City Dev will see its stake increased to 40% from 33.3%. The stakes of Dubai World and El-Ad will drop to a combined 37%.)
2. This should more than offset the negative aspect that Dubai World and El-Ad have scaled back their investment. Recall earlier market speculation of either, or both had wanted out of the venture.
3. The only people who therefore appear to have a bit of cold feet are the bankers, whose exposure drops to $800 mln from $1.2 bln, representing 70% of land cost. But this could very well have been necessitated by the recent credit crisis. (Only Bank of Tokyo has dropped out of the consortium.)
4. With oil prices close to doubling from the low of US$34 per barrel, it is a relief that Dubai is still in, as is El-Ad now that the financial crisis is well past its worst.
5. We further believe there is still room for flexibility or manouvre, given there are 7 years to mandatory completion, and the project needs no more than 3-4 years to complete. City Dev, which is taking charge of the development estimated to cost $2.5 bln including land, has indicated plans to commence work by end 2010.
6. We have a BUY on City Dev.
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