Pinnacle and HSBC near to £600m deal

Consortium set to agree terms for banking giant to lead financing of 288m City skyscraper project
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The Independent Online

A US and Middle-Eastern consortium which plans to build one of London's tallest skyscrapers, the Pinnacle, is close to agreeing terms with HSBC to lead the £600m financing of the ambitious project.

The consortium and its development manager, Arab Investments, are in detailed talks with HSBC, one of the world's biggest banking groups, to act as lead arranger and underwriter. HSBC would be responsible for helping secure financing from other banks for the Pinnacle, which will spiral 288m (945ft) upwards from its base, close to Lord Foster's Swiss Re "Gherkin" in the City.

The Pinnacle, designed by architect Kohn Pedersen Fox, is a hugely complex project and will cost around £600m to build. Final development costs will amount to £1bn, as £400m of debt and equity has already been poured into the site on Bishopsgate.

The consortium, which includes Pramerica Real Estate Investors and Saudi Arabian private wealth management company Sedco, bought the site in 2008 for £200m with £140m of debt from the German bank HSH Nordbank. A further £200m of equity has since been injected to meet running costs.

With a building of this size, any development finance will require the involvement of several banks; no one bank would want that level of debt on its balance sheet. It may also require two or even three other banks to act as joint arrangers with HSBC.

The consortium will also be set firm targets by the banks, such as letting 50 per cent of the building in advance, and agreeing to meet any construction cost overruns. Development finance must be secured by November 2011 to meet the Pinnacle's targeted completion date of 2013. There's a long way to go before the contractor, Brookfield, can begin construction in earnest, but securing HSBC would be a significant step. It would also be a sign that HSBC, which has ridden out the credit crunch relatively unscathed, is flexing its muscles and increasing its debt provision to the UK commercial property sector.

All parties declined to comment.

On another project, HSBC, beside Santander, as joint lead arrangers, and Investec Bank, agreed last week to provide a £115m loan facility to Heron International to develop the Heron residential tower in the City – another positive sign for the property market. New commercial development in London had ground to a halt in the past two years as bank finance dried up.

Law firm Berwin Leighton Paisner said last week that a survey of the top 100 bankers and property developers revealed that "development finance will be crucial in helping to break the deadlock and restore property sector activity to previous levels".

Much of the development which has begun in the past two years, such as the Shard skyscraper, by London Bridge, has been largely funded by equity investors.

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