S P Setia's UK plans fall through

KUALA LUMPUR (Nov 25): S P Setia Bhd's bid to lead a £5.5 billion (RM27 billion) redevelopment project in London came to a halt when lenders to the beleaguered project declined its preliminary offer.

In an announcement to Bursa Malaysia on Thursday, S P Setia said the lenders to the Battersea Power Station development, located along the River Thames in South London, have decided not to engage further on its preliminary offer to take over the debts that amount to £300 million at this stage.

The debts of the Battersea Power Station project are held by Ireland's National Asset Management Agency (Nama) and the Lloyds Banking Group. The debts were taken by Real Estate Opportunities (REO) and backed by a development project surrounding the decommissioned coal-fired power plant. It entailed building 3,400 homes, a conference centre, 10 million sq ft of offices and retail space at Battersea.

The £300 million of debt backing the stalled development project matured on Aug 31 without being repaid by REO, which has been courting investors.

On Nov 18, S P Setia made a conditional non-binding preliminary offer to acquire the senior debt facilities and the swap exposure and other related claims in the Battersea Power Station site and its holding company for £262 million.

The preliminary offer was conditional upon a satisfactory technical, environmental, financial, corporate, tax and legal due diligence and the results approved by the board and shareholders of S P Setia.

"The preliminary offer was made in the ordinary course of the group's activities to seek out good opportunities in both local and selected international markets to expand its operations. S P Setia's recent success in penetrating the competitive Australian property market with the launch of our Fulton Lane project in Melbourne's central business district has given us the confidence to explore other strategic global cities," it said.

Despite the setback, S P Setia firmly believes prospects in London are good and the group will continue to look out for and assess other possibilities to invest via strategic partnerships and landbanking opportunities.

Although S P Setia did not disclose the reasons for the lenders turning down the offer, The Daily Telegraph newspaper had previously reported that Nama and Lloyds were not happy with S P Setia's offer given that the non-discounted value of the debt was £300 million.

Other offers are being sought, reported The Telegraph, which noted that Chelsea Football Club owner Roman Abramovich had shown interest in acquiring the site to build a stadium.

REO bought the 40-acre site in 2006 for £400 million with the purpose of developing the area into an integrated development centred around the iconic derelict power station.

Battersea Power Station was decommissioned in 1983 but is recognised as a building of special architectural or historic interest in the UK for its iconic four white-chimneys and as the largest brickwork structure in Europe.

Repurposing the disused power plant requires approval, which REO finally secured on Nov 11, 2010 from the Wandsworth Council after years of planning.

Had S P Setia been successful in acquiring the land, it would have had to raise £5.5 billion to develop the district in central London according to a pre-approved master plan.

The project would have created a huge presence for S P Setia, but an analyst pointed out that securing funding would have been a challenge in the current global conditions.

The master plan includes extending the London underground into the district to provide access and transforming the foundations of the power plant into a green-energy generation station.

"S P Setia already has a lot on its plate and has much recently acquired landbank. Perhaps it was for the best it did not undertake this ambitious project," said a local analyst.

"Going into a foreign market is risky. Furthermore, while S P Setia has a good track record, it is with townships and not a development of this magnitude or in this market," said the analyst.

The analyst pointed out that, "Since the deal has fallen through, S P Setia will probably be looking elsewhere to invest. Since it already has several projects underway locally, and given how it has been investing overseas, it would not come as a surprise if S P Setia continues expanding overseas."

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