Qataris rescue Canary Wharf

Jenny Davey

In July a team of bright and youthful Chinese representatives from the state-owned China Investment Corporation (CIC) descended on Canary Wharf asking for an investor presentation about the east London financial district.

Just five weeks after that presentation, the world’s largest sovereign wealth fund, run by Lou Jiwei and Gao Xiqing, emerged on Friday as part of a consortium that has engineered the most significant property deal of the year — the £800m recapitalisation of Songbird, owner of Canary Wharf.

The deal is the biggest equity raising of any UK property company this year — trumping cash calls by British Land, Land Securities and Hammerson. It also represents the first big investment in British property by the Chinese and shows the seismic power shift in the world’s money markets. But while the Chinese attracted the headlines, even more significant was the backing of Qatar’s sovereign wealth fund, an existing Songbird investor that will emerge as its biggest shareholder after the deal.

In late April John Carrafiell, adviser to Songbird, flew to Doha to meet Ahmad Al-Sayed, chief executive of Qatar Holding. The Qataris reportedly gave an on-the-spot commitment to pump more cash into the company — long before CIC got involved. They even indicated they would be willing to do the whole recapitalisation themselves.

The bailout would be breathtaking in a boom — but during a recession that has wiped almost 50% off property prices in 18 months, it is extraordinary.

On Friday night the deal was being greeted in the City as a defining moment, not just for the property market — which is finally showing signs of life again — but for London itself.

For the protagonists of the transaction, the past 72 hours have been stressful. More than 60 lawyers have been toiling through the night to sign off the paperwork for the trans- action that saved Songbird from collapsing into administration. The lawyers were supported by a high-powered roster of dealmakers, including Naguib Kheraj, the former finance director of Barclays who runs JP Morgan Cazenove, and Carrafiell, who led Songbird’s £1.7 billion takeover of Canary Wharf in 2004.

If Songbird had collapsed into administration, there were fears its demise could have led to the fall of Canary Wharf itself. Insiders feared Songbird’s stake could be taken over by hostile investors who would force the sale of its buildings and strip the group of more than £1 billion of cash on its balance sheet to make a quick return.

“For me, it’s a new year,” George Iacobescu, Canary Wharf’s chief executive, said on Friday. The relief was palpable.

The cash injection will in effect wipe out Songbird’s debts and give Canary Wharf the confidence to start building office towers again when the market improves. It will also strengthen its ability to lure big companies from the Far East and the Middle East.

CIC will join existing shareholders in Songbird — Morgan Stanley Real Estate Funds, Qatar Holding and Simon Glick — in providing more than £800m in new equity to pay back a Citigroup loan. Qatar will be the largest shareholder with a stake of almost 30%. Glick will have about 27%, CIC will have about 19% and MSREF about 10%. Qatar and CIC will also take £275m of non-voting and non- convertible preference shares.

For the Qataris and CIC it will no doubt emerge as the deal of the downturn. Canary Wharf will be more conser- vatively financed than its competitors, opening the door for it to snap up distressed assets. And it creates the prospect of the group being drafted in to help the Qataris with the rest of their property portfolio in London — including the Shard of Glass.

Only one group will be left crying over a lost opportunity — Brookfield, the Canadian group that holds a minority stake in Canary Wharf. It was rumoured that it hoped to take advantage of Songbird’s difficulties and buy up its stake. (Jenny Davey, The Sunday Times) http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article6815195.ece

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