City Developments (CDL) has completed a complex financial deal that will allow it to avoid hefty penalties that were looming over unsold units at its Nouvel 18 luxury condominium near Orchard Road.
The developer has sold its equity stake in wholly owned Summervale Properties - which owns the condominium -for $977.6 million, via a Profit Participation Securities (PPS) scheme.The PPS deal involved equity shares worth $102 million that were offered to high-net-worth Singaporeans, $579.2 million in borrowings from DBS and United Overseas Bank and bonds amounting to $296.4 million.
These were taken up by DBS and CDL unit Ventagrand Holdings.
The developer told The Straits Times that 14 high-net-worth investors acquired the equity shares, with the investment sizes averaging around $7 million to $8 million each.
The deal means CDL no longer holds shares in Summervale, allowing the developer to save millions in charges it would otherwise have had to pay if it failed to sell all 156 units at the Anderson Road condominium by the end of next month. The project has yet to be launched for sale.
The freehold Nouvel 18 obtained its temporary occupation permit (TOP) in November 2014, and is valued at $965.4 million, or $2,750 psf based on its saleable area of about 351,000 sq ft.
The trade-off for us was whether to structure a deal today, at probably a lower price than the units intrinsically might be selling for three to four years from now, or... hold on to it, pay the necessary penalties and sell units below market value in a difficult market. We chose the former as a better mechanism for value creation for our shareholders.
.CDL CHIEF EXECUTIVE GRANT KELLEY, on the Profit Participation Securities scheme.
The PPS deal - CDL's third since the initiative was introduced in 2014 - is part of the firm's strategy to grow its funds management business. It now has over $3.5 billion in funds under management from three PPS platforms. Another motivation behind the deal was about "de-risking the portfolio".
CDL chief executive Grant Kelley said: "The trade-off for us was whether to structure a deal today, at probably a lower price than the units intrinsically might be selling for three to four years from now, or... hold on to it, pay the necessary penalties and sell units below market value in a difficult market.
"We chose the former as a better mechanism for value creation for our shareholders."
The penalties Mr Kelley referred to relate to Qualifying Certificate (QC) rules applying to foreign developers - including Singapore developers listed here but with foreign shareholders.
Under the QC rules, CDL must sell all the units at Nouvel 18 by the end of November - that is, within two years of obtaining a TOP. If it failed to achieve that, the firm would have to pay extension charges related to the number of unsold units.
CDL would have taken a $38 million hit - or 8 per cent of the land purchase price - in the first year. The charges would jump to $76 million (16 per cent of land purchase price) in the second year and $114 million (24 per cent of land purchase price) in the third and subsequent years if all the units remained unsold. CDL's wholly owned subsidiary, Trentwell Management, will be appointed as the exclusive asset manager and marketing agent for five years with an option to extend to seven, to manage and sell the units of Nouvel 18.
The deal has bought CDL time to explore asset management strategies for Nouvel 18, in consultation with the new owners of Summervale Properties.
"I would think a leasing programme could be launched soon, and that a sales programme would likely come later... We are still looking at all the options," said Mr Kelley.