Construction work on Stage I of Mayfair City on a prime Kollupitiya site interrupted two years ago remains suspended with economic and market conditions for property development remaining unfavourable, Mr. S.R. Vamadevan, Chairman of Shaw Wallace & Hedges PLC has told the company’s shareholders.

This development is being undertaken by Pioneer Properties and Lee Hedges Limited, the fully owned property development subsidiary of Shaw Wallace & Hedges.

Shaw Wallace posted a group pre-tax loss of Rs.116.3 million for the year ended March 31, 2009, up from the pre-tax loss of Rs.75.4 million the previous year with bank interest of Rs.114.7 million attributable to be the main cause of the negative result.

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

He reported to shareholders that despite several talks with prospective investors, the company could not identify any joint venture collaborator to re-commence construction work on Mayfair City or secure any local or foreign fund at a reasonable cost.

"Since the economic factors have totally changed, when compared with the time of the initial commencement of the development, the company may have to change its plans in relation to the project in progress," Vamadevan said.

However, he was optimistic about the future outlook with the North East conflict now resolved and peace prevailing.

"Hopefully, in the long term, there would be a resurgence of construction activities, which would result in investor interest in the valuable Kollupitiya land," he said.

The developers intended re-designing Stage I of Mayfair City and continue construction as a commercial development with a joint venture partner. They are moving away from the previous residential focus.

"In relation to the balance land, the company is looking for a collaborator for a mega project and this would depend on how soon the country could attract foreign direct investments," he added.

Shaw Wallace owns valuable real estate in Kollupitiya with Galle Road and Duplication Road frontages.

The dispute the company has with the BOI over the acquisition of the Bonaventure Textiles factory building at Katunayake continues in court, the chairman said.

The liquidators claim for additional compensation for this property was not admitted and settled despite the Attorney-General’s opinion, Vamadevan said, and they filed action in the District Court of Negombo against BOI for the recovery of this compensation.

The preliminary objection lodged by the BOI in this case has been turned down by the District Court but this order is now being appealed before the High Court (Civil Appeal) of Gampaha.

Shaw Wallace has a stated capital of Rs.51.2 million, capital reserves of Rs.504 million and revenue reserves of Rs.1.8 billion in its books with total equity attributable to equity holders of the parent at Rs.2.35 billion.

Current liabilities include Rs.293.2 million due to related companies and interest bearing loans and borrowings of Rs.512.5 million payable within one year.

Group net assets per share were down to Rs.459.27 from Rs.481.93 a year earlier while for the company was up to Rs.502.28 from Rs.501.69.

The company’s share traded at a high of Rs.159.50 and a low of Rs.75 during the year under review against a trading range of Rs.250 to Rs.110 the previous year.

Lee Hedges & Company (BVI) with 51% is the controlling shareholder of the company followed by Elgin Investments Ltd. (8.63%) and Pioneer Homes (Pvt) Ltd. (7.11%).