Shaw Wallace and Hedges PLC which had embarked on a real estate development on its prime Kollupitiya property with Galle Road and R.A. de Mel Mawatha frontages has been compelled by circumstances to convert what was originally a largely residential project into a commercial development.

The company’s Chairman, Mr. S.R. Vamadevan, said that conditions have changed from the time the project commenced with marketing of apartments and the demand for them in Colombo declining due to expected over-supply.

"In addition, the company experienced a massive increase in the cost of finance, which has made the project cost substantially higher, making it the highest cost in the region," he said.

`Thus the residential apartments business does not seem to be viable."

Vamadevan said that the Mayfair City Stage I would be re-defined and continued as a commercial development with new plans and fresh estimates.

Construction work has been interrupted with effect from October last year due to the high cost of borrowing although the superstructure work is currently in progress, he said.

The chairman said that the construction work would recommence, most likely with a foreign investor as a joint venture partner, or with some other form of participation.

The year ended March 31, 2008 closed with losses attributable to the parent company growing to Rs.71.9 million from Rs.16.1 million the previous year. At company level a small profit of Rs.4.6 million, up from Rs.3.3 million the previous year, was posted.

Vamadevan said that the loss was mainly due to an interest cost of Rs.55.5 million charged to the profit and loss account during the period that construction work was interrupted. They had to also carry the administrative overheads and other expenditure of their fully owned property development subsidiary, Pioneer Properties and Lee Hedges Limited.

"If the construction work was not interrupted, this interest cost would have been capitalized," he explained.

Shaw Wallace has a stated capital of Rs.51.2 million, a capital reserve of Rs.504 million and revenue reserves (group) of Rs.1.9 billion and Rs.2 billion for the company.

The major shareholders of the company are: Lee Hedges & Co. Ltd. (51%), Elgin Investments Ltd (8.63%), Turner Holdings (Pvt) Ltd. 7.11%), S.A. Gulamhusein (6.08%) and Ms. T. Moorthy (3.85%).

The Shaw Wallace share traded at a high of Rs.250 and a low of Rs.110 during the year against a trading range of Rs.240 to Rs.150 the previous year.

The report states that since total liabilities of the property development subsidiary exceed the book value of the assets by Rs.76 million, the parent company has agreed to provide financial and other necessary support to complete Stage I of the Mayfair City project.

The directors of the company are: Messrs. S.R. Vamadevan (Chairman), M.N. Gunasekera (CEO), L.L. Samarasinghe, R. Seevaratnam and J.M. Swaminathan.