News | Wednesday, 24 June 2009

International Recession: A blessing in disguise

IHI launches €30m bond issue, undertakes new projects

David Darmanin

With bank deposit interest at a low, time is ripe for large corporations to knock on public investors’ doors for debt funding with which property may be purchased at the advantageous prices of the day.
Corinthia’s acquisition, development and operating arm - International Hotels Investments p.l.c. (IHI), is no exception. IHI Managing Director Joseph Fenech recently announced the issue of a €30 million bond bearing an interest rate of 6.25 per cent per annum, with an over-allotment option of an additional €5 million. This is the fourth bond issue announced by IHI within the space of nine years.
Fenech admits that from an operational point of view, the recession “created its own challenges”.
But from an acquisition point of view, he agrees that this recession is in fact a “blessing in disguise”.
“When up until recently, people were spending like there was no tomorrow, the entry cost of acquiring properties was exceptionally high and artificially inflated,” he said. “This is now the right time to invest because pricing is more realistic.”
Founded in 2000, IHI was the first public listed company within the Corinthia Group.
”Originally, Corinthia Palace Hotel Company Ltd - the parent company, owned, operated and developed every section of the group – be it hotel management, operations, industrial catering operations, hotel ownership or development ranging from 3 to 5 star,” Fenech told Business Today.
Whereas other segments within Corinthia group represent different categories of hotels, the setting up of IHI was very industry specific in that it deals with five-star hotels of 250-rooms minimum.
“Upon the foundation of IHI, the group ensured that specific sectors of the business take a specific direction. So the acquisition of prime properties fell within our direct remit,” he explained.
But when it came to other acquisitions and projects, particularly in North Africa, that was delegated to another company called Mediterranean Investments Holding plc, in which Corinthia owns a 50 per cent stake. This same company today owns Palm City in Tripoli, while a number of other projects are in the pipeline. Corinthia Palace Hotel Company Limited also passed on its hotel management to CHI Ltd - another company in which IHI owns 70 per cent.
On flotation of IHI in 2000, Corinthia Palace Hotel Company Limited, transferred the Corinthia San Ġorġ to IHI and the ownership. of an old and derelict hotel in Budapest in exchange for shares. The first bond issue was for €11.65 million (Lm5 million) which complimented with a Public Offering was specifically earmarked to part-finance the reconstruction of the Hungarian property.
“We then went about to acquire permits for the construction of what was to be the Corinthia Grand Hotel Royal in Budapest, which was officially launched in 2004,” he said. “In the same year, this property won an award for the best architecturally designed hotel in Europe.”
In 2001, IHI acquired a rundown four star hotel in Lisbon. After operating it for less than sixteen months until the necessary permits were issued, the company carried out a thorough refurbishment of the bedrooms; completed the upper four floors – which had been unfinished on acquisition; fully refurbished the public areas and, by May 2004; opened it as a five star hotel.
“Its completion was in time for the European Cup football finals held in Lisbon in June of that year,” he said.
In January 2002, IHI acquired a Sheraton hotel in St Petersburg.
“Upon acquisition, we re-branded this property and over time we refurbished its bedrooms. Over the past two years, we have also developed the two adjoining sites after demolishing the existing buildings. Using a €100 million investment, we built 105 executive rooms to support the existing hotel, the largest ballroom and conference facilities in St Petersburg and a ground floor level dedicated to retailing in one of the buildings. The second building is totally dedicated to retail and office accommodation. In total we are now providing 11,000 square metres of commercial space and office accommodation.”
In May 2007, IHI signed an agreement with the Dubai-based investment firm Istithmar – and this saw a capital injection of €178 million in IHI for a 33 per cent share in return.
“Parallel with this capital increase, Corinthia Palace Hotel Company Limited transferred the Corinthia Bab Africa Hotel and Commercial Centre in Tripoli and Corinthia Hotel in Prague to IHI,” Fenech said. “This was a very important milestone in our development because it provided us with additional equity, strengthened our balance sheet, provided us the ability to look forward to new projects and gave us two substantial hotels already operating with very healthy cash flow streams.”
When in 1999 Corinthia invested in Tripoli, “many branded us as being mad”.
“At the time, Libya was totally isolated from the rest of the world,” Fenech said. “So it was an exceptionally brave decision and an act of faith that sooner or later sanctions would be removed and Libya would open up. With God’s help and providence the timing could not have been better. We opened the hotel in September 2003 and sanctions were removed in early 2004. Today we know what a success story Tripoli is. While the rest of the world is in a depression, Libya has managed to amass enormous amounts of reserves which it can now successfully deploy in improving its infrastructure – so one country’s threat is another country’s opportunity.”
Indeed, IHI is now looking into the development of yet another five star hotel in Libya, this time in the city of Benghazi. The 250 room Corinthia Hotel Benghazi will stand on the site of the former Al Jezira Palace Hotel on Ali Wouraieth Street, exactly on the water’s edge. The original hotel building will be retained and a back plot and an interconnecting road have been acquired to accommodate the extension of the property. “What do we see in Benghazi? There is definitely not the right infrastructural support to back up the enormous opportunities the city holds. Unless we provide adequate amenities and infrastructure, there will not be an increase in demand. We are acting as demand creators. Undoubtedly, Benghazi is very close to offshore oil drillings and there are already companies with established operations there. However, many corporate representatives prefer commuting between Tripoli and Benghazi due to the latter’s lack of infrastructure.”
Corinthia Palace Hotel Company Limited has since 1974 been in partnership with the LFICO - the Libyan government’s investment wing. This of course, provides them with a confidence boost in undertaking projects at the Great Jamahariya.
“LFICO is a 50 per cent shareholder in Corinthia Palace Hotel Company Ltd,” Fenech explained. “Corinthia Palace Hotel Company Limited is a 58 per cent shareholder in IHI. So indirectly, LFICO is a 29 per cent investor in IHI. LFICO is also a 25 per cent direct participant in the Benghazi development. This investment is 75 per cent owned by IHI with the remaining 25 per cent owned by LFICO.
“We not only have a very comfortable relationship with LFICO, but an excellent one. LFICO appreciate the success of the group, and openly admit that their involvement with us has been one of their best foreign investments ever made. The fact that they have remained so strong and committed shareholders in IHI through Corinthia, and that they have invested other than their indirect investment, directly in Benghazi, and an even higher percentage in the upcoming London development is testimony in the trust they have in IHI.”
Application forms and copies of the prospectus for the current bond issue are available from all branches of leading banks and authorised financial intermediaries. Whilst subscriptions of not less than €1,000 will be eligible for subscription on Tuesday June 30, applications for €2,500 or more have been accepted since Wednesday 16 June to participate in the pre-placement that will close on 26 June 2009. Investors who already hold equities or bonds of the Corinthia Group are also entitled to participate before 26 June with applications of not less than €1,000.

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24 June 2009

Malta Today


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