Builder of Thailand’s tallest tower defaults on loans, halts projects

Builder Of Thailand’s Tallest Tower Defaults On Loans, Halts All Projects

Bangkok-based property developer Pace Development Corp., builder of Thailand’s tallest tower MahaNakhon in Bangkok, on October 21 announced its inability to service three credit lines it owes to Siam Commercial Bank. The loans amount to 2.645 billion baht, or nearly $88 million, which reflects 12.55 per cent of the company’s total assets. Pace Development is also developer of several other luxury residential developments in the Thai capital and in Hua Hin and owner of US gourmet grocery chain Dean & Deluca.

In a filing to the Thai stock exchange, listed Pace Development said Siam Commercial Bank had issued the company a default notice and requested repayment of the outstanding debt by November 4, which Pace said is not possible owing to a lack of liquidity.

However, the company said it will accelerate discussions with the bank to prepare financial restructuring and debt management plans so it can resume developing projects.

The lion’s share of the loans is related to the refinancing of battling restaurant chain Dean & DeLuca. Pace Development acquired the company in 2014 for $140 million with the majority of funding coming from loans from Siam Commercial Bank.

Gourmet grocery market “too tough”

Since then, Dean & DeLuca kept battling to survive due to “tough market conditions” and accumulated unpaid debt to its gourmet suppliers. The chain closed many of its stores in the US and said it was “reconsidering our business model, rightsize our US operation, while reducing costs to increase business efficiency” which would include more franchise stores in the US and “more online strategies.”

However, as of October 21, 2019, Dean & DeLuca’s website lists just two remaining locations in the US, both in Hawaii.

In September, Pace Development said Dean & DeLuca’s Thai operation plans to raise two billion baht ($66 million) by selling bonds, with the proceeds earmarked for repaying debt and funding investment. It also announced that it will separate the US and Thai business and, to that end, in September this year founded a holding company for Dean & DeLuca Asia in Singapore. In Thailand, Dean & DeLuca currently has eleven branches and says it was operating profitable, whereby its plans announced earlier this year to open five more outlets are being met with doubt by analysts.

One of the defaulted loans worth $8.1 million is further allocated to Pace Project Two Company Limited, a subsidiary that developed the super-luxury Ritz-Carlton Residences in Bangkok’s supertall MahaNakhon tower. It is not clear what effect this will have on the sale of the 209 condominiums with asking prices between $1.3 million and $8.8 million and around $20 million for the penthouses.

Luxury residences still for sale

Pace sold large parts of $1-billion MahaNakhon tower in 2018 to Thai duty-free conglomerate King Power, including the land, the 154-room The Bangkok Edition hotel, the observation deck, MahaNakhon Cube retail building, sculptures, paintings, operating licenses and related contracts for $423 million. The Dean & DeLuca branch since moved away from the building.

However, the part of the project not included in this deal was the Ritz Carlton Residences Bangkok, which is reportedly more than 80-per cent sold. In the deal, Pace CEO and majority owner Sorapoj Techakraisri sold a part of his stake in the building, including the naming rights, for $450 million.

Techakraisri last year said that parts of the proceeds of the MahaNakhon sale would be used to repay loans and develop its four other real estate properties and expand high-end grocer Dean & Deluca in the US, Japan and Thailand. However, this has seemingly not happened.

Stock exchange warning

Meanwhile, the Stock Exchange of Thailand has warned investors in Pace Development that its other debt amounting to $305 million, or 43.76 per cent of its total assets, could also be at stake and advised to “carefully study Pace’s event of defaults information before making investment decisions” and whether the company will be able to produce a financial restructuring and debt management plan and within November this year as signalised.

This additional debt on which the company has not defaulted yet includes credit lines for Pace’s lifestyle projects in Hua Hin, the MahaSamutr Villas and Country Club, the Nimit Langsuan luxury condominium project in Bangkok, and another $38-million credit for Dean & DeLuca Inc. in the U.S., among others.

Overall, as of June 2019 the company had liabilities of $688 million and total assets of $696.3 million.

A look at Pace’s balance sheets paints a devastating picture. The company reported substantial annual losses since its IPO in 2013 except in 2017 when it made a small net profit of $5.65 million mainly owing to sales from MahaNakhon tower.

Worrying financial data

As of June 2019, operating cash flow was negative at -$32 million, the net profit margin stood at -81 per cent, sales declined by 85 per cent over the first half of 2018 and return on equity stood at -182.28 per cent, all signs for a potential bankruptcy in the making, an analyst remarked.

Sorapoj Techakraisri, who stems from a Sino-Thai family of developers who founded one of Thailand’s largest property firms, LPN Development, keeps holding 38.9 per cent of the shares in the company. Other substantial shareholders are Wiwat Kraipisitkul, chairman of Thai alternative power producer Sermsang Power Corporation, and Korsak Chairasmisak, chairman of Thai food and retail conglomerate CP All with 4.54 per cent, as well as Thai businessmen Vichai Vachirapong and Jirawut Kuwanan.

Institutional investors are Singapore-based asset management firm UOB Kay Hian Private Limited, Hong Kong-based brokerage China Tonghai Securities Ltd., HSBC Bank’s Singapore branch, Thai NVDR Company Ltd. which operates as a brokerage and issues and sells Non-Voting Depository Receipts to investors, as well as Siam Commercial Bank itself. The free float as of October 18, 2019 was 51.31 per cent, with 13.8 per cent foreign shareholders.

However, none of the shareholders can possibly be satisfied with Pace Development’s performance since the company’s August 2013 listing at an IPO price of 3.50 baht ($0.12) per share – unless they are short sellers. As of October 21, 2019, the share price stood at 0.07 baht ($0.0023), which does not even make it a penny stock. On the day of the default announcement alone, the stock dropped by 12.5% per cent at almost 400 times the average volume to a market capitalisation of just $33 million. Siam Commercial Bank slid as much as three per cent, the most in about a month.

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Bangkok-based property developer Pace Development Corp., builder of Thailand’s tallest tower MahaNakhon in Bangkok, on October 21 announced its inability to service three credit lines it owes to Siam Commercial Bank. The loans amount to 2.645 billion baht, or nearly $88 million, which reflects 12.55 per cent of the company’s total assets. Pace Development is also developer of several other luxury residential developments in the Thai capital and in Hua Hin and owner of US gourmet grocery chain Dean & Deluca. In a filing to the Thai stock exchange, listed Pace Development said Siam Commercial Bank had issued the company...

Builder Of Thailand’s Tallest Tower Defaults On Loans, Halts All Projects

Bangkok-based property developer Pace Development Corp., builder of Thailand’s tallest tower MahaNakhon in Bangkok, on October 21 announced its inability to service three credit lines it owes to Siam Commercial Bank. The loans amount to 2.645 billion baht, or nearly $88 million, which reflects 12.55 per cent of the company’s total assets. Pace Development is also developer of several other luxury residential developments in the Thai capital and in Hua Hin and owner of US gourmet grocery chain Dean & Deluca.

In a filing to the Thai stock exchange, listed Pace Development said Siam Commercial Bank had issued the company a default notice and requested repayment of the outstanding debt by November 4, which Pace said is not possible owing to a lack of liquidity.

However, the company said it will accelerate discussions with the bank to prepare financial restructuring and debt management plans so it can resume developing projects.

The lion’s share of the loans is related to the refinancing of battling restaurant chain Dean & DeLuca. Pace Development acquired the company in 2014 for $140 million with the majority of funding coming from loans from Siam Commercial Bank.

Gourmet grocery market “too tough”

Since then, Dean & DeLuca kept battling to survive due to “tough market conditions” and accumulated unpaid debt to its gourmet suppliers. The chain closed many of its stores in the US and said it was “reconsidering our business model, rightsize our US operation, while reducing costs to increase business efficiency” which would include more franchise stores in the US and “more online strategies.”

However, as of October 21, 2019, Dean & DeLuca’s website lists just two remaining locations in the US, both in Hawaii.

In September, Pace Development said Dean & DeLuca’s Thai operation plans to raise two billion baht ($66 million) by selling bonds, with the proceeds earmarked for repaying debt and funding investment. It also announced that it will separate the US and Thai business and, to that end, in September this year founded a holding company for Dean & DeLuca Asia in Singapore. In Thailand, Dean & DeLuca currently has eleven branches and says it was operating profitable, whereby its plans announced earlier this year to open five more outlets are being met with doubt by analysts.

One of the defaulted loans worth $8.1 million is further allocated to Pace Project Two Company Limited, a subsidiary that developed the super-luxury Ritz-Carlton Residences in Bangkok’s supertall MahaNakhon tower. It is not clear what effect this will have on the sale of the 209 condominiums with asking prices between $1.3 million and $8.8 million and around $20 million for the penthouses.

Luxury residences still for sale

Pace sold large parts of $1-billion MahaNakhon tower in 2018 to Thai duty-free conglomerate King Power, including the land, the 154-room The Bangkok Edition hotel, the observation deck, MahaNakhon Cube retail building, sculptures, paintings, operating licenses and related contracts for $423 million. The Dean & DeLuca branch since moved away from the building.

However, the part of the project not included in this deal was the Ritz Carlton Residences Bangkok, which is reportedly more than 80-per cent sold. In the deal, Pace CEO and majority owner Sorapoj Techakraisri sold a part of his stake in the building, including the naming rights, for $450 million.

Techakraisri last year said that parts of the proceeds of the MahaNakhon sale would be used to repay loans and develop its four other real estate properties and expand high-end grocer Dean & Deluca in the US, Japan and Thailand. However, this has seemingly not happened.

Stock exchange warning

Meanwhile, the Stock Exchange of Thailand has warned investors in Pace Development that its other debt amounting to $305 million, or 43.76 per cent of its total assets, could also be at stake and advised to “carefully study Pace’s event of defaults information before making investment decisions” and whether the company will be able to produce a financial restructuring and debt management plan and within November this year as signalised.

This additional debt on which the company has not defaulted yet includes credit lines for Pace’s lifestyle projects in Hua Hin, the MahaSamutr Villas and Country Club, the Nimit Langsuan luxury condominium project in Bangkok, and another $38-million credit for Dean & DeLuca Inc. in the U.S., among others.

Overall, as of June 2019 the company had liabilities of $688 million and total assets of $696.3 million.

A look at Pace’s balance sheets paints a devastating picture. The company reported substantial annual losses since its IPO in 2013 except in 2017 when it made a small net profit of $5.65 million mainly owing to sales from MahaNakhon tower.

Worrying financial data

As of June 2019, operating cash flow was negative at -$32 million, the net profit margin stood at -81 per cent, sales declined by 85 per cent over the first half of 2018 and return on equity stood at -182.28 per cent, all signs for a potential bankruptcy in the making, an analyst remarked.

Sorapoj Techakraisri, who stems from a Sino-Thai family of developers who founded one of Thailand’s largest property firms, LPN Development, keeps holding 38.9 per cent of the shares in the company. Other substantial shareholders are Wiwat Kraipisitkul, chairman of Thai alternative power producer Sermsang Power Corporation, and Korsak Chairasmisak, chairman of Thai food and retail conglomerate CP All with 4.54 per cent, as well as Thai businessmen Vichai Vachirapong and Jirawut Kuwanan.

Institutional investors are Singapore-based asset management firm UOB Kay Hian Private Limited, Hong Kong-based brokerage China Tonghai Securities Ltd., HSBC Bank’s Singapore branch, Thai NVDR Company Ltd. which operates as a brokerage and issues and sells Non-Voting Depository Receipts to investors, as well as Siam Commercial Bank itself. The free float as of October 18, 2019 was 51.31 per cent, with 13.8 per cent foreign shareholders.

However, none of the shareholders can possibly be satisfied with Pace Development’s performance since the company’s August 2013 listing at an IPO price of 3.50 baht ($0.12) per share – unless they are short sellers. As of October 21, 2019, the share price stood at 0.07 baht ($0.0023), which does not even make it a penny stock. On the day of the default announcement alone, the stock dropped by 12.5% per cent at almost 400 times the average volume to a market capitalisation of just $33 million. Siam Commercial Bank slid as much as three per cent, the most in about a month.

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