Developer of 530k Sqm Mall Shelves IPO for $740M in Debt

The mall developer controlled by the Philippines’ richest man has announced that it is raising $740 million in debt financing to expand its retail projects in China and its home country, as the company appears to be backing away from an IPO of its China assets.

An official from SM Prime Holdings Inc. said at a press briefing on Thursday that it is raising around $740 million of debt financing through a mix of Philippine peso and US dollar borrowings. The proceeds of the fundraising are intended to support development of more malls in China as well as in the Philippines.

SM Prime chief finance officer Jeffrey Lim said at the briefing that the company has shelved for now any plan to tap the equity markets, saying it was not attractive to issue equity at current stock prices.

To support its China expansion, which includes an unfinished 530,000 square metre mall project in Tianjin, the SM Prime executive said that the company hopes to raise $300 million from a syndication of US dollar debt. Lim indicated that the company would use the proceeds to fund land-banking and mall development in China.

In addition to the round of dollar debt fundraising, the company plans to issue $440 million worth of peso bonds later this year, Lim said.

Earlier this month the CFO of SM Prime’s parent, SM Investments, told the press that, “The long-term plan is that as soon as we have enough malls, then we can separately list the China malls, either in Hong Kong or Singapore.”

Raising Cash to Support a Delayed Mega-Project

One of the reasons SM Prime is searching for financial support is to bring to completion its megamall project in Tianjin, one of China’s most overbuilt cities.

In March 2012 SM began construction on SM Tianjin Shopping Center a mall in Tianjin Binhai New Area which, if completed, will be larger than 74 football fields. At the groundbreaking the company indicated that the project would be finished during 2013, however, at the event last week it projected a new 2015 completion date.

At the event Lim admitted that the developer lacked the funds necessary to bring its brobdingnagian retail centre to market. “We’ll still need more funding for the construction of Tianjin which we’ll open next year,” Lim said.

Launching in an Overbuilt Market

Unfortunately for SM it has chosen to build its biggest projects in a market where malls are already suffering from a lack of shoppers and low leasing demand from tenants.

An October market study by real estate consultancy CBRE said of Tianjin’s mall scene,

The competition in the retail sector intensified as new supply surged, imposing significant challenges on existing projects. In Q3 2013, we observed a shopping mall closure in Tianjin, in addition to several cases of proactive tenant-mix adjustments across the nation. The Tianjin project shut down despite its recent repositioning.”

The chairman of Hong Kong retail developer Hang Lung, Ronnie Chan Chi-chung, also warned of decreased demand for retail space, particularly from high-end retailers. Speaking to the Hong Kong press in January this year Chan said, “The mainland leasing market has entered into the winter and I have no idea when the spring will return.”

Hang Lung is planning to launch a 152,000 square metre mall in Tianjin this year.

SM Takes on a Site in the Third-Tier

At the event, SM Prime also announced that it has secured a new 10-hectare site in Yangzhou, a third-tier city in eastern China’s Jiangsu province near Nanjing.

The group’s five operational malls on the mainland right now include projects in Xiamen, Jinjiang (Fujian), Chengdu, Suzhou, and Chongqing with a total GFA of 800,000 square metres. According to Sio, SM plans to have at least 10 to 12 malls in China before listing.

Listed by Forbes as the Philippines’ wealthiest person, SM’s owner Henry Sy, is estimated to have a personal worth (shared with his immediate family) of $11.4 billion.

SM Investments is listed in the Philippines, where it has 48 malls and is the country’s biggest mall operator.