KUCHING: The China International Economic and Trade Arbitration Commission made an award in favour of the property-owner of Metro City Shopping Plaza and has ordered Parkson Retail Development Co Ltd, an indirect wholly-owned subsidiary of Parkson Retail Group Limited to pay the property-owner a total of RMB140 million.
TA Securities Holdings Bhd’s research arm (TA Research) noted that Parkson Retail Development Co Ltd and the property-owner entered into a tenancy agreement to occupy part of the premises situated at the first floor to the fourth floor of Metro City Shopping Plaza, Beijing, with a total area of approximately 25,140 square meters on September 22, 2006.
The tenancy agreement was for a term of 20 years.
In April 2012, the property-owner had requested the Parkson Retail Development Co Ltd to reduce the total area of the premises under the Tenancy Agreement or otherwise terminate the Tenancy Agreement.
On Dec 6, 2012, the property-owner issued a notice of breach of contract to the tenant, requesting Parkson Retail Development to evacuate the premises within 30 days. This led to Parkson Retail Development Co Ltd submitting an application to the Arbitration Commission, applying for an arbitration ruling on December 27, 2012.
“We are still awaiting more information from the management on this development,” said the research house.
“Looking at total rental expenses made by Parkson Retail Development between FY11 to FY14, we note no decline and can hence assume that part of this arbitral award.
“Nevertheless, we do believe Parkson Retail Group would still have to incorporate a lump sum payment for a large portion of the award not already taken into consideration.”
Additionally, given that Parkson Retail Development has less than 30 days to settle the award, the group has issued a profit warning, which notes that the operating results of the group for the 1Q15 would not be able to cover the impact resulted from the Arbitral Award.
“Assuming the worst case scenario, we estimate our FY15 net profit forecast Parkson Retail Group’s to decline by circa 30 per cent. Subsequently, this could affect our forecast for Parkson Holdings’ net profit.”