China Investment Corp bails out Canary Wharf owner Songbird Estates

Published 29th Aug 2009

China’s state sovereign wealth fund has bailed out the heavily indebted majority owner of Canary Wharf in its first big investment in Britain.

A consortium of China Investment Corporation (CIC); Qatar Holding, the Qatari sovereign wealth fund; and a number of existing investors in Songbird Estates, the majority owner of Canary Wharf, have agreed a life-saving rescue rights issue to pay down £880 million owed by Songbird to Citigroup, the American bank. The deal saved Songbird from bankruptcy.

Subscription to a placing of new shares, which is fully underwitten and is expected to complete in the autumn, represents a gamble by the new investors that Britain’s commercial property market has hit the bottom.

Other existing investors in Songbird, including British Land, decided not to support the share issue.

David Pritchard, the chairman of Songbird, which was advised by JPMorgan Cazneove, said that the deal had saved Songbird from bankrupty. “If we had not been able to achieve this refinancing, we would not have been able to repay the loan to Citibank. We would have faced liquidation or administration,” Mr Pritchard said.

The management of Canary Wharf is understood to be delighted that Songbird’s financial situation has stabilised and is not concerned about the nationality of the investment vehicle’s owners. Songbird, a consortium led by MSREF, Morgan Stanley’s property vehicle, and Simon Glick, the American private investors, took Canary Wharf private in 2004. The Songbird vehicle admitted in April that it was at “material risk” of breaking a clause in a loan from Citigroup that stipulates that its properties must be worth at least 87.5 per cent of the loan.

The covenant was due to be tested within weeks and a breach would eventually have given Citigroup the right to take control of Songbird. The entire £880 million leveraged loan was due to be repaid in early 2010 and there was little appetite among banks for a debt refinancing.

At the time sources said that Citigroup, which has itself had to be bailed out by the US Government, was most likely to push for a debt-forequity swap under which the MSREF consortium handed over the vast majority of Songbird. Citigroup is not entitled to take control over Canary Wharf itself because the property’s revenues have been securitised and are owned by other investors.

Since April the plummeting market for commercial property has stabilised and Songbird, which is entitled to revenues from Canary Wharf only after the proceeds of the securitisation have been paid, now looks a much more attractive proposition for investors.

CIC and Qatar will invest through two separate tranches of shares. The £275 million of non-voting preference shares the two funds will take up will be the first beneficiaries of Songbird’s dividends once Canary Wharf returns to profitability and, therefore, are particularly attractive. Of the ordinary shares, CIC and Qatar will own two thirds while MSREF and Glick will take up the rest. The two sovereign wealth funds will be entitled to two directors each on Songbird’s board.

Citigroup, which reports next month and badly needs to shore up its battered balance sheet, also comes out of the deal well. The American bank will get 95 per cent of the face value of its £880 million loan.

Canary Wharf was hit particularly hard by the collapse of commercial property prices after high-profile tenants, such as Lehman Brothers, Bear Stearns and Merrill Lynch, went bust or were taken over, which led to a fall in demand for offices in the financial district. The Wharf is facing a slew of tenants downsizing rental commitments or leaving when their lease break comes up.

Tall and tallest

? Canary Wharf contains Britain’s three tallest buildings: One Canada Square (774ft), 8 Canada Square and Citigroup Centre (both 654ft)

? G. Ware Travelstead, an American property developer, proposed a new financial district in the Docklands in 1985. He was unable to fund the scheme and it was taken over by Olympia & York, which filed for bankruptcy in May 1992

? In 1995 a consortium backed by the former owners of Olympia & York bought the development and renamed it Canary Wharf Limited

? Songbird’s Canary Wharf properties comprise 7.9 million sq ft of office space

? About 100,000 people work at Canary Wharf

Source: ' Times '

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