Stock Market Review - IHI's expansion strategy
Following acquisitions in London and Benghazi, IHI targets the Russian Federation
Following the increase in the share capital of International Hotel Investments plc (IHI) through the issue of 178 million shares to Nakheel Hotels of Dubai (formerly Istithmar Hotels FZE) at €1 per share in May 2007, IHI's mission is to increase its hotel portfolio in several markets.
At the time of the equity injection, IHI acquired the Corinthia Bab Africa Hotel & Commercial Centre in Tripoli, Libya, and the Corinthia Towers Hotel in Prague, Czech Republic, from Corinthia Palace Hotel Co. Ltd mainly through the allotment of further shares. Corinthia Palace Hotel Co. Ltd is the parent company of the Corinthia Group and majority shareholder in IHI. The two acquisitions proved to be beneficial to IHI as the hotels generated total revenues of €33.3 million and profits of €16 million in the first seven months since forming part of IHI. The hotels in Tripoli and Prague are also expected to be the main contributors to IHI's expected increased profitability during 2008 (IHI reported that during the first quarter of 2008 total revenues increased to €24.72 million from €10.99 million in the same period the previous year, with the gross operating profit surging to €7.28 million from €1.29 million in Q1 2007).
The new share capital injection was intended to fund further acquisitions, and within a few weeks IHI announced new investments in London and Benghazi.
Following an international bidding process (in which 26 offers were received from some of the world's leading developers), a consortium composed of IHI and its principal shareholders LFICO and Nakheel Hotels were awarded the €174-million tender for the acquisition of The Metropole Hotel and 10 Whitehall Place in London.
The site is being developed into a 285-room luxury hotel and 12 apartments and should be completed by 2011.
IHI also entered into a joint venture agreement with LFICO to develop a major hotel on the waterfront in central Benghazi, Libya's second largest city. The new 350-room hotel will also have extensive conference facilities and a business centre and is expected to be functional by 2011. Both the London and Benghazi hotels will be operated by CHI Ltd on completion.
Furthermore, on May 26, IHI announced a new strategic partnership with Intourist (the Russian tour operator and hotel company) to jointly create the largest hotel chain in Russia.
Intourist was founded in 1929 as the official state travel agency of the Soviet Union. Following its privatisation in 1992, Intourist is now majority-owned by Sistema JSFC, which is listed on the London Stock Exchange. Sistema is one of Russia's largest private sector consumer services companies with investments worldwide, principally in the telecommunications and technology sectors but also with considerable exposure to real estate developments. The second and third principal shareholders of Intourist are the Moscow City Government and GAO Moskva. GAO Moskva in turn also belongs to the Moscow City Government and is focused on developing the city's potential as a tourist destination.
Intourist is the oldest and best-known tourist business in Russia and has established itself as a leading universal operator in the tourist market with a sales network spread across 34 regions in Russia. Intourist's mission is to create a fully-integrated tourism group by exploiting synergies between its key business areas: tourism, retail chain, hotels and transport. Intourist has 10 affiliate companies overseas with 7,000 partners in 168 countries.
IHI and Intourist have agreed to join forces to establish an equally-owned investment fund with an initial capital of $100 million, which according to recent press reports aims to draw down an additional $200-230 million of bank loans by the end of 2008 enabling the fund to invest $330 million in upscale hotels in major cities across the Russian Federation. The 5-star hotels will operate under the Corinthia brand, while the 4-star hotels will be named after both parties, Corinthia-Intourist.
International press mention was made that IHI and Intourist will be investing in developments in Sochi, Nizhny Novgorod, Rostov-on-Don, Moscow and St Petersburg.
Sochi is a Russian resort city, which has been chosen to host the 2014 winter Olympics, located in Krasnodar Krai along the shores of the Black Sea.
Nizhny Novgorod is Russia's fourth largest city and boasts more than 600 historic, cultural and architectural monuments. Unesco has included Nizhny Novgorod in its official list of 100 cities of the world which are of significant cultural and historical value;
Rostov-on-Don is situated on the Don River in Rostov Oblast, and is famous for its ancient Russian history, tradition and culture. It is a popular destination for international tourists.
Moscow is the capital of Russia, and also the largest city in Europe. It is a major economic centre and is very popular with tourists for its ancient architecture, museums, parks, cathedrals and monuments.
St Petersburg is Russia's second largest and Europe's fourth largest city, after Moscow, London and Paris. It is a major European cultural centre, and an important Russian port on the Baltic Sea.
IHI already has a presence in St Petersburg following the purchase of the Nevskij Palace Hotel and four adjacent properties in January 2002. IHI is currently developing these four sites with the hotel being extended by an additional 105 executive bedrooms.
The development also includes a convention centre as well as a commercial area for lease as retail and office space. The extension and completion of the commercial centre is expected by the end of 2008, and the recently published IHI annual report stated that by 2009 the St Petersburg project would contribute a considerable stream of non-hotel-related earnings, through the release of the retail and office component of the development.
With assistance from its strategic shareholders Nakheel and LFICO, IHI is set to continue on its expansion drive. IHI's chairman Alfred Pisani stated in the recently published 2007 annual report that discussions are currently underway to identify hotels for acquisition and development in some of the world's major cities including Moscow, Paris and New York, as well as emerging markets such as Libya, Ukraine, Croatia and several of the countries previously forming the Soviet Bloc.
These other acquisitions are expected to be partly funded by an international public offering of IHI shares preceding the secondary listing on the London Stock Exchange, possibly in the coming months.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof, and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.
At the time of the equity injection, IHI acquired the Corinthia Bab Africa Hotel & Commercial Centre in Tripoli, Libya, and the Corinthia Towers Hotel in Prague, Czech Republic, from Corinthia Palace Hotel Co. Ltd mainly through the allotment of further shares. Corinthia Palace Hotel Co. Ltd is the parent company of the Corinthia Group and majority shareholder in IHI. The two acquisitions proved to be beneficial to IHI as the hotels generated total revenues of €33.3 million and profits of €16 million in the first seven months since forming part of IHI. The hotels in Tripoli and Prague are also expected to be the main contributors to IHI's expected increased profitability during 2008 (IHI reported that during the first quarter of 2008 total revenues increased to €24.72 million from €10.99 million in the same period the previous year, with the gross operating profit surging to €7.28 million from €1.29 million in Q1 2007).
The new share capital injection was intended to fund further acquisitions, and within a few weeks IHI announced new investments in London and Benghazi.
Following an international bidding process (in which 26 offers were received from some of the world's leading developers), a consortium composed of IHI and its principal shareholders LFICO and Nakheel Hotels were awarded the €174-million tender for the acquisition of The Metropole Hotel and 10 Whitehall Place in London.
The site is being developed into a 285-room luxury hotel and 12 apartments and should be completed by 2011.
IHI also entered into a joint venture agreement with LFICO to develop a major hotel on the waterfront in central Benghazi, Libya's second largest city. The new 350-room hotel will also have extensive conference facilities and a business centre and is expected to be functional by 2011. Both the London and Benghazi hotels will be operated by CHI Ltd on completion.
Furthermore, on May 26, IHI announced a new strategic partnership with Intourist (the Russian tour operator and hotel company) to jointly create the largest hotel chain in Russia.
Intourist was founded in 1929 as the official state travel agency of the Soviet Union. Following its privatisation in 1992, Intourist is now majority-owned by Sistema JSFC, which is listed on the London Stock Exchange. Sistema is one of Russia's largest private sector consumer services companies with investments worldwide, principally in the telecommunications and technology sectors but also with considerable exposure to real estate developments. The second and third principal shareholders of Intourist are the Moscow City Government and GAO Moskva. GAO Moskva in turn also belongs to the Moscow City Government and is focused on developing the city's potential as a tourist destination.
Intourist is the oldest and best-known tourist business in Russia and has established itself as a leading universal operator in the tourist market with a sales network spread across 34 regions in Russia. Intourist's mission is to create a fully-integrated tourism group by exploiting synergies between its key business areas: tourism, retail chain, hotels and transport. Intourist has 10 affiliate companies overseas with 7,000 partners in 168 countries.
IHI and Intourist have agreed to join forces to establish an equally-owned investment fund with an initial capital of $100 million, which according to recent press reports aims to draw down an additional $200-230 million of bank loans by the end of 2008 enabling the fund to invest $330 million in upscale hotels in major cities across the Russian Federation. The 5-star hotels will operate under the Corinthia brand, while the 4-star hotels will be named after both parties, Corinthia-Intourist.
International press mention was made that IHI and Intourist will be investing in developments in Sochi, Nizhny Novgorod, Rostov-on-Don, Moscow and St Petersburg.
Sochi is a Russian resort city, which has been chosen to host the 2014 winter Olympics, located in Krasnodar Krai along the shores of the Black Sea.
Nizhny Novgorod is Russia's fourth largest city and boasts more than 600 historic, cultural and architectural monuments. Unesco has included Nizhny Novgorod in its official list of 100 cities of the world which are of significant cultural and historical value;
Rostov-on-Don is situated on the Don River in Rostov Oblast, and is famous for its ancient Russian history, tradition and culture. It is a popular destination for international tourists.
Moscow is the capital of Russia, and also the largest city in Europe. It is a major economic centre and is very popular with tourists for its ancient architecture, museums, parks, cathedrals and monuments.
St Petersburg is Russia's second largest and Europe's fourth largest city, after Moscow, London and Paris. It is a major European cultural centre, and an important Russian port on the Baltic Sea.
IHI already has a presence in St Petersburg following the purchase of the Nevskij Palace Hotel and four adjacent properties in January 2002. IHI is currently developing these four sites with the hotel being extended by an additional 105 executive bedrooms.
The development also includes a convention centre as well as a commercial area for lease as retail and office space. The extension and completion of the commercial centre is expected by the end of 2008, and the recently published IHI annual report stated that by 2009 the St Petersburg project would contribute a considerable stream of non-hotel-related earnings, through the release of the retail and office component of the development.
With assistance from its strategic shareholders Nakheel and LFICO, IHI is set to continue on its expansion drive. IHI's chairman Alfred Pisani stated in the recently published 2007 annual report that discussions are currently underway to identify hotels for acquisition and development in some of the world's major cities including Moscow, Paris and New York, as well as emerging markets such as Libya, Ukraine, Croatia and several of the countries previously forming the Soviet Bloc.
These other acquisitions are expected to be partly funded by an international public offering of IHI shares preceding the secondary listing on the London Stock Exchange, possibly in the coming months.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof, and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved.
• Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.