Faced with a looming November deadline to finish selling all its units in the completed Nouvel 18 condo project in a plush District 10 locale, City Developments Ltd (CDL) is racing to stitch together a profit participation securities (PPS) scheme for the project.
The securitisation structure which CDL is proposing to potential investors and lenders will price Nouvel 18, which is located near the corner of Anderson Road and Ardmore Park, at around S$965 million; this translates into S$2,750 per square foot based on its saleable area of some 351,000 sq ft.
CDL gained full ownership of Summervale Properties, after buying out partner Wing Tai’s half-stake and was trying to wrap a potential securitisation deal involving Nouvel 18 and to clinch all necessary approvals before November 2016.
The project received Temporary Occupation Permit (TOP) in November 2014 and Summervale has to finish selling all units in the project within two years of the TOP date, as part of government conditions on foreign housing developers (which by definition includes all listed companies). Otherwise, the developer will have to pay hefty extension charges to the state for each year of extension, pro-rated to the number of unsold units in the project.
Once the proposed structure is fully in place and all the approvals given, the plan is to begin selling Nouvel 18 units in the market; the indicative target price is understood to be above S$3,000 psf.
The PPS scheme has the following highlights:
- If the selling price achieved is higher than the S$2,750 psf entry level, the equity investors and the junior mezzanine bond holders (that is, CDL) will split the gains equally.
- If units have to be sold below S$2,750 psf, the junior mezzanine bond holders (CDL) will take the first hit of up to nearly S$300 psf loss, translating into a selling price of at least S$2,451 psf.
- If the selling price were to sink below S$2,450 psf, the equity investors will start to suffer a loss, according to market talk.
- The junior mezzanine bonds will have a longer tenor of seven years, compared to five years for the other three groups of participants in the exercise – the equity investors, the banks that will provide the 60 per cent senior debt, and the senior mezzanine bond holders.
- The longer tenor for the junior mezzanine bonds is seen as potentially catering for a situation where the units in the Nouvel 18 project could not be sold out within five years and refinancing is required from the banks.
If the PPS is not in place, CDL will have to pay extension charges, amounting to around S$38 million (or 8 per cent of the purchase price of the site) in the first year of extension. The extension charges will escalate to S$76 million (or 16 per cent of the land purchase price) in the second year and 24 per cent of the land purchase price per annum in the third and subsequent years. The extension charges are pro-rated to the number of unsold units in the development.