Songbird Estates, which owns about 61% of Canary Wharf Group, said it plans to raise new equity from investors including the sovereign wealth funds of China and Qatar in an effort to repurchase debt and avoid breaching debt covenants.
Some background is called for.
Canary Wharf — so-called because No. 32 berth of the West Wood Quay of the original Import Dock specialized in the Canary Island fruit trade — almost since the very beginning, has had problems of one sort on another. It is built on the site of the West India Docks on the Isle of Dogs. To get the feel for that think of the movie Oliver Twist and add a lot of grime. As the port industry began to decline it went downhill and was closed in 1980.
Then Michael von Clemm, former chairman of Credit Suisse First Boston (CSFB), came up with the idea to convert Canary Wharf into offices. Funding was a problem but Olympia & York bought in and construction began in 1988 with the first buildings completed in 1991. This included One Canada Square that became the UK’s tallest building and a powerful symbol of the regeneration of Docklands.
Not for long. Shortly after the opening, the London commercial property market collapsed and Olympia & York Canary Wharf Limited filed for bankruptcy in May 1992.
Furthermore there was strong opposition from the quite clannish local residents. However, over the course of the development relations with the local community have improved and more than 7,000 locals — that is people from Tower Hamlets — residents work at Canary Wharf.
In December 1995, an international consortium, backed by the former owners of Olympia & York and other investors, bought the scheme. The new company was called Canary Wharf Limited, and later became Canary Wharf Group.
Recovery in the property market and the much-delayed start of work on the Jubilee Line, a tube connection, made the project sort of viable.
In March 2004 Canary Wharf Group was forced to be taken over by a consortium of investors led by Morgan Stanley using a vehicle named Songbird Estates to buy Canary Wharf Group. It was a bitter battle.
Canary Wharf tenants include major banks, such as Barclays, HSBC and Citigroup, law firms such as Clifford Chance, as well as news media and service firms, including Thomson Reuters and the Daily Mirror.
At the end of 2007 the official number of people employed on the estate was 93,000, of whom around 25% live in the surrounding five boroughs. Increasingly Canary Wharf is becoming a shopping destination, particularly with the opening of the Jubilee Place shopping center in 2004, taking the total number of shops to more than 200 and increasing employment in retail to around 4,500. About 500,000 people shop each week at Canary Wharf.
Songbird said it entered into agreements to repurchase and repay its existing $1.4 billion Citigroup senior loan facilities at a 5% discount to the outstanding principal and accrued interest by October 20. Songbird previously said it was under material risk of breaching its loan covenants, had it not refinanced.
Among those committed to subscribe are China Investment and Morgan Stanley Real Estate Funds.
The parties have also committed to deposit GBP150 million ($244 million) in two tranches into an escrow account held for the benefit of Songbird and Citi.
In a statement, Songbird Chairman David Pritchard said: "This deal secures the future of Songbird on the best possible basis for our shareholders."
Wall Street Journal reported that Canary Wharf Group said it welcomes the announcement. Chief Executive George Iacobescu said, "Canary Wharf Group remains a sound and strongly financed company, in control of a diverse portfolio of offices and shops with long leases."
The writer, who know the area well having lived or worked there on and off since the late sixties, thinks it all has terrible fung shui. Now that Chinese money is going in a team of fung shui priests should be hired to sort out the district. It badly needs it.