Treasury 'betrayal' threatens liquidation for Canary Wharf: Banks furious as Government refuses to guarantee pounds 400m Jubilee Line deal

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The Independent Online
CANARY WHARF is facing the threat of full-scale liquidation after an unexpected Government move that threatens to undermine the entire refinancing of the massive London Docklands development.

The refinancing deal, which was expected to go through this summer, would have pulled Canary Wharf out of receivership and established the development as a full commercial venture. If Canary Wharf is forced into liquidation however, it would have to be sold off at 'fire-sale prices', according to bankers.

That could have a devastating effect on the commercial property market. Shares in property companies have risen sharply since the beginning of the year as institutions and foreign investors have adopted a more positive attitude to property values. But property experts fear that a sudden flood of hundreds of thousands of square feet of office space on to the London market at rock-bottom prices could kill off the fragile property recovery.

The intervention by the Government in the refinancing arrangements has left the 11 banks involved in the deal incandescent with rage at what they regard as an 11th-hour betrayal by the Treasury. At a meeting at Downing Street last Wednesday, ministers demanded the removal of a key clause from the deal to finance the Jubilee underground extension to Docklands.

The clause committed the Government to repaying the banks' pounds 400m investment in the line's extension, including pounds 98m contributed by the European Investment Bank, if the project was not completed by the year 2000. Bankers say that without the clause, which guarantees their investment if the project is not finished, the deal to finance the Jubilee extension will collapse.

They regard the Jubilee Line as crucial to the future of Canary Wharf because the Docklands Light Railway, which already runs to Canary Wharf, is insufficient to carry large numbers of people the area. If the underground extension is not built, they believe the pounds 300m refinancing to bring Canary Wharf out of receivership will also collapse.

Lloyds Bank, which is leading the refinancing talks, will contact the other banks in the consortium this week.

Although the Government has not given up hope that some agreement can still be reached, the banks suspect that the Treasury is deliberately trying to kill the Jubilee Line extension. It has already committed pounds 1.6bn of public money to the project which would immediately be released if the Jubilee extension was cancelled.

'We're all fully aware that Portillo is running around trying to claw money back from anyone and everyone,' said a source close to the negotiations. Michael Portillo, Chief Secretary to the Treasury, is believed to have delivered a report to the Prime Minister arguing that the Jubilee Line represents bad value compared with other infrastructure projects.

The Government last week announced that it would allow the Bill for the Crossrail project, expected to cost pounds 1.8bn, to go ahead. Crossrail would provide an underground link between east and west London.

Bankers are particularly angry because they say that the clause just vetoed by the Government has been part of the financing negotiations since November. They were already well advanced in their plans for bringing Canary Wharf out of receivership, and were about to appoint Sir Peter Levene, a former Defence Ministry official, as the chairman of the company.

Those close to the situation said this weekend, however, that if the refinancing fell through the only way to pay off creditors might be to sell off Canary Wharf's assets. When Canary Wharf went into receivership last year, Ernst & Young, the receivers, warned that liquidation was always an option.

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