MIH's second project in Libya

Last week, the Corinthia Group associate company Mediterranean Investments Holding plc announced the signing of a shareholders' agreement with the Economic Development Real Estate Company of Libya for the development of a 40-storey high-rise tower on the seafront in central Tripoli, Libya.

Despite the global economic environment, the tender for the Medina Tower was awarded in the face of stiff international competition as large property development companies have turned their focus on the Libyan capital.

The Medina Tower will be constructed on an area covering 12,500 square metres of land adjacent to other high-rise developments and in close proximity to the Corinthia Bab Africa Hotel & Commercial Centre which is fully-owned by another Corinthia Group subsidiary International Hotel Investments plc.

This new high-rise development will be mainly focused on residential properties comprising a total of 180,000 square metres of floor space spread over 40 floors above ground level and four levels of underground parking. The development will feature 336 high-end apartments for sale, 26,000 square metres of office space for rent, 22,000 square metres of commercial, conference and food and beverage facilities, together with underground parking facilities for around 850 cars.

MIH will inject €26 million as its share capital contribution into Medina Tower Ltd, thereby using all the proceeds raised by the company in its second bond issue in June 2008. This new company will be jointly owned with the Economic Development Real Estate Company, although Corinthia Group chairman Alfred Pisani had indicated in the recent annual general meeting of International Hotel Investments plc that IHI could also participate in this new development in view of the possible immediate capital gain on completion.

Discussions are reportedly already underway with contractors for the construction of the Medina Tower foundations which are expected to commence in the coming weeks as an application has already been made for the necessary planning permits.

This is the second project by MIH in Tripoli following the launch of the Palm City project in 2006. The Palm City project is nearing completion with some tenants already moving into their new residences in recent weeks ahead of the expected official inauguration in September.

This 413-unit project is aimed to cater for the international corporate community seeking quality accommodation to rent in Libya. A large number of companies are flocking to Libya in view of the substantial economic development currently taking place following the lifting of the UN sanctions and lured by the largest oil reserves in Africa. The designer-finished units range from spacious villas to studio and penthouse apartments, offering tenants a secure and self-contained village unrivalled to date.

Palm City Residences, as the development is named, was originally intended to service the many expatriates in the oil and gas industry which have moved into Tripoli as a result of the new oil exploration concessions granted by the National Oil Corporation (NOC).

In recent months, the NOC finalised contracts with some leading companies including Eni, PetroCanada, Occidental Petroleum, Repsol and Total. However, Palm City is reportedly receiving interest from a cross-section of companies and individuals wishing to take up residence. These companies range from the construction sector and other multinational companies involved in healthcare, consultancy and financial services seeking to establish their presence in this fast developing economy.

The interest in the financial services sector also follows the recent statements by the Libyan Central Bank that it is considering offering private sector banking licences next year to attract more foreign banks, following the partial privatisation of two state-owned banks awarded to BNP Paribas and the Jordanian Arab Bank.

MIH estimates that upon completion in the coming weeks, Palm City residences will enjoy a 50 per cent occupancy rate. This self-contained village is set on an area covering 140,000 square metres and the individual units are normally rented out on five- to seven-year leases by the multinational company on behalf of its employees. The total cost of the project, including land value, is reportedly in the region of €125 million financed through equity and shareholders' loans provided by Corinthia and their Kuwaiti partners and bank funding in the region of €60 million through a syndicate of banks, including Bank of Valletta plc.

The meticulous work done by MIH's management who spent considerable time negotiating all individual contracts with suppliers and the Corinthia Group's in-depth knowledge of the Libyan market enabled the company to complete the project at a cost which according to Palm City managing director Reuben Xuereb, is well below industry norms. This has, in itself, created substantial value for MIH's shareholders. MIH also benefitted from the team of experienced architects and engineers engaged to manage the construction and finishing of the Palm City project.

Being among the pioneers in the Libyan market in such up-market developments, the experience to date with the Palm City project and the on-the-ground expertise, various new opportunities are opening up for MIH.

MIH's objective has always been to acquire, develop and operate real estate projects in North Africa and this second project in Libya is testimony to the opportunities available for this young and dynamic company which is set to leverage on the strong experience gained by the Corinthia Group and the expertise of their Kuwaiti partners over the years.

At the time of the second bond issue in June last year, MIH had indicated that it is working on three potential projects, one of which was the Medina Tower. This has now been successfully concluded. The other possible projects included a large site in Misurata and a huge area located close to Tripoli's secondary airport. However, with all funds of the second bond issue directed towards the Medina Tower, MIH would require additional debt or equity funding to continue its development strategy.

While Maltese investors have so far only been given the opportunity of participating in MIH through its two bond issues both carrying a coupon of 7.5 per cent per annum, it is likely that the company will be seeking to attract investors who would prefer to share in the success achieved to date and the rental income generated from Palm City once new tenants begin moving in during the coming months via an equity investment.

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Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.