BT : OCBC picks UE to build Orchard hotel-cum-mall

Business Times - 08 Jun 2010

OCBC picks UE to build Orchard hotel-cum-mall

Redevelopment of Specialist Centre, Hotel Phoenix site to cost some $550m

By CONRAD TAN

By CONRAD TAN OCBC Bank has appointed property group United Engineers to build a hotel and shopping mall at the former Specialists' Shopping Centre and Hotel Phoenix site at Somerset.

The project will cost some $550 million to develop and is expected to be completed by the second half of 2013, according to UE. When completed, the entire project will be sold to OCBC.

That arrangement allows OCBC to retain ownership of the prime Orchard Road property after the redevelopment is complete. Under rules introduced by the Monetary Authority of Singapore in 2000 to separate banks' financial activities from their non-financial activities, Singapore banks cannot engage in developing or managing hotels or other properties, although they are allowed to hold properties for investment.

OCBC had said in March that it was in discussions with UE to redevelop the site, which sits between the recently opened 313@Somerset and Orchard Central shopping malls.

UE will develop the site and also arrange for its financing, OCBC said in a statement yesterday.

When contacted, an OCBC spokesman declined to say how much the bank is paying UE in development fees.

The fees 'are expected to contribute positively' to UE's future earnings, the developer said in a separate statement.

UE expects to start construction on the site next month.

It will fund the project with a mix of its own cash and bank loans.

It will develop the project through two wholly owned special-purpose vehicles - UE Orchard and UE Somerset.

UE Orchard, which will have an issued share capital of $500,000, will be responsible for the construction of the hotel and retail mall, as well as a pedestrian bridge linking the new development to the former Orchard Emerald site, which is owned by OCBC's insurance unit, Great Eastern.

UE Somerset, which will have an issued share capital of $200,000, will develop an underpass that will also link the new development to the former Orchard Emerald site.

Upon completion of the project, UE Orchard and UE Somerset will be sold to OCBC, which has agreed to buy both companies' shares and repay any outstanding shareholders' loans - money owed to their parent, UE - at the time.

OCBC declined to say how much it expects to pay UE for the entire project on completion, but the price will be based on the net tangible assets of UE Orchard and UE Somerset at the time, plus the amount of any outstanding shareholders' loans.

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