Corinthia expects strong year ahead

- double bond issue launch tomorrow

By David Lindsay

Speaking to the Malta Financial and Business Times yesterday about tomorrow’s bond issue, Corinthia Group Managing Director of Business Development and Corporate Administration, Joseph Fenech, explained that despite the setback the industry suffered in the aftermath of 11 September, the Group actually outperformed itself compared to 2001.

Mr Fenech also spoke about the strategy behind tomorrow’s bond issue and developments in store for the Group this year.

Commenting that expectations for the current year are high, Mr Fenech explains, "As a group we performed, before exceptional items, even better than we had over 2000, which is a remarkable achievement whichever way you look at it.

"We did see a reduction over last year’s fourth quarter. Where we have operations located in city centre areas, the months of September and October are considered to be peak months. They are strong months for the conference business and we enjoy very healthy occupancies and premium rates over that time frame.

"So when we had September and, immediately after that, October being severely affected, not as a direct results of 11 September but as a result of what followed thereafter, we did experience cancellations – particularly for conferences. Initially people were afraid to travel but coupled with that, with a view to the doom and gloom scenario being put forward, companies also initiated austerity measures. So that was a two-pronged blow for occupancies.

"Effectively what had happened was that conferences were postponed, not cancelled indefinitely, and what we are seeing is a rebound for 2002, now that each and every country is slowly but surely experiencing an upsurge."

As such, Mr Fenech comments, in spite of last year’s events, the Group expects to do even better this year.

Corinthia Finance tomorrow launches a double bond issue, one in Maltese liri and another denominated in euros, the proceeds from which will be used for the general expansion of the Corinthia Group. One of the main projects underway is the development of the Corinthia Tripoli Hotel - a multifaceted development comprised of 300-room hotel and adjacent upmarket commercial centre, both expected to be over and above what one would expect from a five-star establishment.

However, when designing the bonds’ structure, the Group had kept the government’s investment repatriation scheme in mind and, in fact, catered specifically for it.

Speaking about the euro-denominated bond, Mr Fenech explains, "What we did was offer a very attractive interest rate, slightly below that of the Maltese lira bond, to act as an inducement for those Maltese who have invested their funds abroad. In fact, the government’s repatriation scheme sees its first deadline at the end of March, which coincides with the closing of the bond issue. As such, we have given a discount of three per cent as a compensation for the one-off registration fee of the investment repatriation scheme. The discount gives investors a handsome yield of just over seven per cent."

In terms of rate expectations for the euro bond, the base rate of the euro lower than that of the Maltese lira, which is currently at four percentage points, or 400 basis points, while the euro is at 3.25 per cent, 75 basis points below the lira. Additionally, international expectations are that the euro would take some time to rise again as the European economies recover.

Mr Fenech explains, "The reason we came up with two separate issues was, rather than targeting only one market, we wanted to diversify and expand our reach to the largest possible amount of investors.

"Also, with local interest rates falling, there is a lot of money avaliable lying idle in local banks and the attractive coupon rate that we are offering at 6.75 per cent is expecting to entice many local investors.

"We refined the issue, in that rather than paying interest once a year as we did in the first bond issue, we realised through our negotiations and discussions with stockbrokers that Maltese investors are more accustomed to a twice annual coupon. This is principally through investors’ involvement with Maltese government bonds and we have purposely refined the bond to meet those expectations. The result is a 6.75% coupon rate, payable six months in arrears, which, at current interest rates, is some 250 basis points above what one would expect to earn on a one-year deposit account."

Although subscriptions for the bonds are due to open tomorrow, Mr Fenech describes the initial response as very encouraging.

He explains, "We’ve had very encouraging signals and our expectations are that within a few days from opening subscriptions we’ll have to close after meeting our original subscription expectations and exercising our over-allotment options.

"In terms of the operating memorandum, we will be placing up to 50% on a pre-placement basis. There has been a large demand and now we have a positive problem of how to contain it to 50%."

"While that in itself is a good sign, we don’t want to disappoint very many people. As such, the moment we realise we have exceeded the Lm12 million over-allotment option, we would try to close it. We would rather have people disappointed by being too late in making a decision than being early paying for it and having their money refunded.

As in past Corinthia bond issues, when it comes down to allocation, the Group is to favour smaller investors in order to have as wide a distribution as possible.

The Corinthia Group has a busy year ahead of it. Mr Fenech elaborates, "In 2002 we will have the St Petersburg Nevskij Palace Hotel, which we acquired on 14 January, fully operational. Meanwhile, the Alfa, the Lisbon property we acquired last year, will also be operational this year. Meanwhile, we will be launching the Corinthia Budapest Hotel Royal in September and the Corinthia Tripoli Hotel in November. Obviously the full effect of these developments will be tangible in 2003 when they are all producing at their full capacity."