R&F Buying Back London Project From Far East Consortium at 11% Markup

Guangzhou R&F Properties said Friday it is repurchasing the Vauxhall Square mixed-use project in south London from Hong Kong-based Far East Consortium. The buyback comes five months after the developer sold the undeveloped site at a 42 percent discount in a desperate move to pare its debt.

In a filing to the Hong Kong stock exchange, the cash-strapped mainland builder said it is buying back 100 percent of Vauxhall Square to maintain its interests in this “landmark development project” in the United Kingdom. Moreover, it said the repurchase can “showcase the group’s commitment to growth and overseas development” and will “bring long-term benefit”.

R&F in March agreed to sell the Vauxhall Square parcel to Far East for £95.7 million (now $109.9 million), taking a loss of more than £68.8 million on the distressed sale. As part of the deal, the developer retained the option to repurchase the project near Battersea Power Station from Far East for about £106.6 million within six months of the deal’s completion.

The disposal was closed on April 4, according to R&F’s Friday statement, with the developer, which successfully negotiated an extension on $5.1 billion in offshore bonds in July, now exercising its option to repurchase the asset at a more than 11 percent markup from the earlier sale price.

Financing Found

After seeing its revenues fall by 55 percent and suffering a net loss of RMB 6.9 billion ($1 billion) in the first half of 2022, R&F says it will obtain external financing from independent third parties to buy back the project, and may be required to transfer or pledge its entire stake in Vauxhall Square to a designated entity.

Far East, the developer led by second-generation tycoon David Chiu, will bag a gain of £10.9 million in return for holding the project for less than five months, with the company planning to the cash for general working capital, according to its filing to the Hong Kong stock exchange Friday.

Located just south of the River Thames in the former industrial area of Nine Elms, Vauxhall Square has planning consent for development of 133,000 square metres (over 1.4 million square feet) of gross floor area comprising residential, hotel, office, retail and leisure use. Construction has yet to begin on the main site, according to R&F’s Friday statement.

Vauxhall Square is one of a trio of London projects which had once held the promise of creating a UK business for the Chinese giant.

In early 2018 the company had acquired Dalian Wanda Group’s One Nine Elms, a 103,000 square metre mixed-use project since renamed London One, after teaming up with fellow mainland developer CC Land to buy Nine Elms Square, a 12-building complex adjacent to One Nine Elms from Wanda in 2017.

Since renamed Thames City, R&F in May sold its 50 percent stake in the former Nine Elms Square to CC Land chairman Cheung Chung-kiu for HK$2.66 billion (now $339 million), booking a loss of HK$1.84 billion.

The £900 million London One project made unwanted headlines earlier this year when workers reportedly downed tools and walked off the site after R&F failed to pay the principal contractor, London-based Multiplex.

In June, R&F struck a deal with Precis Capital Partners backed by a consortium of lenders including funds managed by Apollo Global Management and Carlyle Group’s Crosstree Real Estate Partners, which provided £770 million in fresh funding for the development. The development was restarted and is now slated for completion next November.

Buying Time

R&F has improved its liquidity in recent months by getting extra time to pay off some of its obligations.

In renegotiating its offshore debt in July, the company was able to push out the maturity date on the entirety of offshore obligation by an average of three to four years for bonds which had been set to mature over the next two years.

To sweeten the deal, R&F promised that, should it be able to dispose of the London One project, or its R&F Princess Cove project in Johor Bahru, Malaysia, or achieve sales at the properties, that it would use the net proceeds to partially refinance the notes.

The developer also managed to extend or refinance RMB 3.35 billion in domestic bonds, according to its interim report published last week.

As of June, the Chinese firm still has RMB 134.51 billion in outstanding borrowings with around RMB 83 billion of that amount due within the next 12 months.

Those short term liabilities stand against R&F’s cash on hand and restricted cash of RMB 15.32 billion as of June, with the company vowing to negotiate with its creditors to gain more time to resolve its liabilities.