Difficult pandemic year costs Corinthia Hotels owner IHI €90 million in losses

The original version of this report, printed in MaltaToday on Sunday of 6 June 2021, carried a factually wrong assertion about the sale of a 50% stake in Golden Sands Resort Limited to IHI plc, which erroneously referred to that stake as belonging to the Zahra family (Island Hotels Group) which sold its share of Golden Sands to IHI in 2015. The sale referred to had nothing to do with the Zahra family and the correct report appears in this online version of the report. The error is regretted.

A difficult pandemic year has cost International Hotel Investments – the owner and operator of the Corinthia hotels – just over €90 million in losses.

The international hotel group was forced to shut down as from March due to the COVID-19 lockdown, forcing the suspension of its capital spending programme. 

Year on year revenue decreased by over €176 million, from €268 million in 2019 to €91 million in 2020, resulting in pre-tax losses of €90.3 million.

IHI executive chairman Alfred Pisani, founder of the Corinthia brand, said Corinthia’s hotels group had “little or no business during the first two quarters of 2021”.

“This is all very painful but beyond our control. However, what is within our control is the discipline that we shall maintain to ensure that all our hotel operations and other activities control payroll costs whilst concurrently reducing all other operating costs. We expect that this discipline in maintaining maximum efficiency will, in future years, translate into additional profits, which will cover the losses incurred last year and over the immediate term.”

Early on in the pandemic, IHI engaged with Bank of China, HSBC, Bank of Valletta, APS, Sberbank and others for capital repayment deferral schemes and the restatement of banking covenants. In Malta, IHI took full advantage of the state scheme to tap into a soft loan of €24.5m. 

Plans to sell its Prague hotel to a private investor for €158 million were abandoned when the investor had to withdraw from the agreed sale once the pandemic struck.

IHI said it was seeing green shoots of recovery with the resumption of its St Petersburg hotel, but also with a mid-May reopening of its London hotel, which represented 30% of its income in 2019 – equivalent in terms of revenue to all its Malta hotels.

Corinthia is now in negotiations with the government over an “enhancement value” it will have to pay for the conversion of 9,000sq.m of the total 25,000sq.m land at Ħal-Ferħ, into residential use. The development will be a total 85,000sq.m enclosed compound with a 162-room hotel and 25 villas. The land was formerly part of the Island Hotels Group, when the Zahras were planning to turn the former Air Malta holiday complex into a luxury timeshare resort.

Pisani also said in the annual report that IHI is still exploring a second listing on an international stock exchange and exploring new ways of raising capital.

The company had aborted a second listing in the UK in 2008, following 18 months of discussions with Goldman Sachs, due to the financial meltdown of 2008. “This is not something that can happen overnight, and some 18 months of preparation are needed. In this context, I have instructed management to look afresh, at the opportune time, into the possibility of a second listing. We will also look at other ways of raising capital with the ultimate aim of enabling our company to grow and maximise shareholders’ value,” Pisani said.

Golden Sands

Earlier in 2020 IHI also bought out the remaining 50% shareholding in Golden Sands Resorts Limited, from a former partner in Golden Sands, now Bezemer Limited, an American company, for €13 million.

Originally, in 2015 IHI plc had acquired Island Hotels Group (IHG) for a total enterprise value of €109 million in a cash and an IHI share swap and integrated IHG into IHI’s books. This transaction at the time had included 50% of the Golden Sands hotel.

The Zahra family remains significant shareholders of IHI as a result of the transaction that took place in 2015.

In its last annual report, executive chairman Alfred Pisani said the company had to acquire the rest of the 50% of the Golden Sands hotel when its American partner, Bezemer Limited, went into liquidation, for the consideration of just €13 million.

“Despite the unprecedented challenges, and in an effort to protect its interests, the company had to negotiate and acquire the other 50% of Golden Sands Resort, since our American partner had gone into liquidation as it fell victim to the COVID-19 pandemic. This move protected the interests of the company, its shareholders and its employees. Moreover, the price paid for this acquisition was a fraction of the price we paid for the other half of Golden Sands a couple of years back.”

To minimise due diligence and limit the warranties demanded from the seller, a newly-formed BVI company, Bezemer Limited, was set up. IHI’s Maltese subsidiary then acquired the entire Bezemer shareholding for €13 million.

Former IHI director Winston Zahra, the founder of Island Hotels, took part in the initial negotiations. Zahra turned 80 in November 2020 and retired in February after a life long career in the tourism industry and serving on the IHI board since 2015.