Highlight Berjaya seeks new cash to finish Great Mall of China

by **Cals** Mon 20 Jan 2014, 18:58

Highlight Berjaya seeks new cash to finish Great Mall of China

Business & Markets 2014

Written by Syuhida Silmi of theedgemalaysia.com

Monday, 20 January 2014 16:23

TYCOON Tan Sri Vincent Tan’s ambitious plan to build the world’s largest mall in China was delayed after missing the October 2013 deadline to complete phase one.

To put the project back on track, Tan has appointed a major local bank to raise financing, find a new equity partner or get an investor to buy a stake from one of the two shareholders of Berjaya (China) Great Mall Co Ltd (BCGM), the company building the mall.

Listed Berjaya Land Bhd owns a 51% stake while Tan holds the remaining 49% in BCGM, which has a paid-up capital of US$165.9 million (RM542.4 million).

Tan announced the development of The Great Mall of China in Yanjiao City, Hebei province, with great fanfare in mid-2012. The 18.5 million sq ft mall was touted to replace The Dubai Mall in the United Arab Emirates, which has a build-up of 12.1 million sq ft, as the world’s largest.

Sources say a major local bank was approached late last year to help raise up to US$160 million to complete the RM1.6 billion integrated complex via three options — a bank loan, issue of new shares to a new investor or one of the two existing shareholders selling out.

According to documents seen by The Edge, the pricing of a stake in BCGM will be at a premium to the value of work done to date. Berjaya is also open to a buyback arrangement on completion.

Datuk Francis Ng, chief executive officer of Berjaya Land, had previously been reported as saying that the company was confident it could carry out the first phase without any bank loan. He said in news reports in April 2012 that phase one was 40% completed, and that the remaining portion would be completed in October 2013.

A source tells The Edge, however, that construction has fallen behind and the mall is only one-sixth completed, with October this year as the new deadline to finish the first phase.

In an email reply, Ng says: “We are not ready [at] this time to disclose further on the Great Mall of China’s progress and/or completion date, as we are still in the midst of further discussion with the relevant authorities.”

Phase one was intended to be financed through BCGM’s paid-up capital and the sale of retail space. However, as at April 2012, BCGM was reported to have burnt through half its paid-up capital.

Because of the delay, there has been no revenue from the sale of retail space as envisaged, which explains why Tan and Berjaya are looking for a fresh capital injection for the project.

The first phase is planned to offer one million sq ft of retail space, a one million sq ft pedestrian mall, extreme park, water park and family park. The entire project was initially slated for completion in 2017.

As a comparison, The Dubai Mall — part of the US$20 billion Downtown Burj Khalifa development by Emaar Properties — was built in a little over four years. The construction cost for just the shopping mall could not be ascertained.

In China, South China Mall in Dongguan, infamous for being a dead mall, is currently the largest at 9.6 million sq ft. It has been able to attain an occupancy rate of just 1% up till last year, seven years after its opening. The development suffers from poor accessibility.

The Great Mall of China, by contrast, is located in Yanjiao, which is on the outskirts of Beijing, a 30-minute drive from Beijing’s central business district, and just 38km away from Tiananmen Square.

With its strategic location close to Beijing and Tianjin as well as other cities in Hebei, the catchment population is reportedly 100 million people. Yanjiao itself has a population of 250,000.

On paper, the Great Mall appears to be viable and is forecast to achieve a gross development value of US$1.88 billion against a development cost of US$488 million, according to documents circulated to potential new shareholders.

The question now is whether Tan and Berjaya can acquire the new funds to get the ambitious project back on track.

This article first appeared in The Edge Malaysia Weekly, on January 13, 2014.