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Tuesday, March 28, 2023

First Festival Mall Defaults on $25m Stanbic IBTC Loan

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The Nigerian retail boom that heralded a renaissance in the construction of shopping malls has apparently turned to bust as First Festival Mall has reportedly defaulted on a $25 million loan from Stanbic IBTC.

First Festival Mall is a Joint Venture that owns a sprawling shopping complex in Festac Town, Lagos, which includes UACN Property Development Company Plc, Africa Capital Alliance and UPDC Real Estate Investment Trust.

UPDC provided a Revenue Guarantee of $2million (Two Million Dollars) for a loan taken by First Festival Mall Ltd. The loan structure allowed quarterly rental payments and a bullet repayment at maturity.

“The loan has fallen due and First Festival Mall Ltd. was not able to repay. As a result of this, the lender has called on the guarantee in May 2020. We have made a provision for this guarantee of $2million (Two Million Dollars) only at the exchange rate as at 30 June 2020 (N1 – $387.96). However, we are in discussions with the lender to review the details of the guarantee in order to reach a mutually agreeable position on how it will be settled,” UPDC said.

Nigeria’s retail space has been under pressure in recent times even before the onset of the coronavirus pandemic and #EndSARS protests that led to the looting and burning of numerous shopping malls in the country.

The usual Anchor tenants such as Shoprite, Silverbird Cinemas and Spar were having a tough time breaking even as foot traffic to malls dropped drastically following the 2016 recession in Nigeria.

Growth has remained at below trend of 2 percent since 2017 leading to a slide in disposable income and consumers willing to purchase only the bare low margin necessities when they visit malls.

The Festival Mall was developed with a $9 million bridge facility part-funding from Stanbic IBTC Bank. The bank subsequently refinanced this amount with the provision of a seven-year $25 million medium term loan facility.

In addition, the lender provided additional support via transactional banking and hedging product to further enhance the project feasibility.

South Africa’s supermarket retailer, ShopRite, recently announced plans to pull out of Africa’s biggest economy, Nigeria, 15 years after it launched in the country.

The major reasons for this are:

  • The company is re-evaluating its operating model and has been approached by interested investors willing to take over their Nigerian outlets.
  • Tough business climate in Nigeria are injurious to sales. An example are losses recorded during the last xenophobic reprisal attacks in Nigeria and endSARS protests.

ShopRite’s forthcoming exit comes after Mr. Price, another South African retail brand, shut down its Nigerian stores.

Flaunting the advantages of the Mall, the Stanbic IBTC deputy MD in 2015 pledged the bank’s readiness to support landmark real estate projects in Nigeria.

We doubt the bank will be putting any money into the construction of any new malls in Nigeria anytime soon.

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