NEWPORT council could be saddled with as much as £7 million a year in borrowing costs if plans for funding Friars Walk fail.
Yesterday, the Argus exclusively revealed that the Newport council is planning to borrow up to £90 million to fully cover the cost of building and fitting out the shopping and leisure complex, with the aim of it opening by November 2015.
Under the agreement the cash would be lent to Queensberry, which would pay back the loan at a commercial rate of interest. If it goes as planned, the council’s budget would not be spent on the loan.
A report to next Tuesday’s full council meeting, which will consider whether to approve the idea, says that if Queensberry couldn’t pay back the cash the council could take the scheme over and sell it on or re-finance it.
The firm has until 12 months after completion to repay the money – by June 2017 at the latest.
But if it can’t refinance it or sell it, the council could be faced with costs of between £4 million to £7 million to fund the borrowing.
This would have to come from its own budget, but would be partially offset by income from the scheme.
Queensberry is to be charged a commercial rate of interest for the loan – the difference between that and Newport council’s costs of borrowing the loan from the Public Works Loan Board will generate a surplus that will contribute towards any losses. According to the report there are two opening windows for anchor store Debenhams – in November 2015 and March 2016.
“It is critical for the funding agreements to be finalised at this time in order to meet the Debenhams opening dates,” the report reads.
The report also explains why the agreement is preferable to private funding, saying that Friars Walk is being developed by a “special purpose vehicle” known as Queensberry Real Estate (Newport) Limited, which has no capital of its own.
Its only security on borrowing is the value of the completed scheme, so as a condition of private funding it would be required that the council underwrite the financial risk.
The report says it is therefore no more onerous for the authority to provide all of the development funding.
Queensberry Real Estate has previously been involved in other city centre redevelopment projects such as Southgate in Bath and Victoria Square in Belfast.
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