The Island Hotels Group is to launch its planned flotation on the Malta Stock Exchange through an equity and bond issue that will raise €20 million from the public.
The offer, which opens for public subscription on September 22, will see the beginning of a new chapter for the group as it seeks to accelerate its growth in Malta and internationally, group chairman Winston V. Zahra told The Times Business.
As former chairman Nazzareno Vassallo divests his 50 per cent stake in the company, half of the resulting 17.6 million shares are to be acquired by Mr Zahra's two sons, chief executive officer Winston J. Zahra and director Trevor Zahra at par (€1). Manchester United footballers Gary Neville and Ryan Giggs will each acquire 3.12 per cent with an investment of €2.2 million. €0.25 million in equity has been reserved for the group's staff.
The remaining €6 million will be made available for sale to the general public. A €14 million eight- to 10-year bond issue is being launched in tandem with the initial public offering, bearing a coupon of 6.5 per cent. The pre-allocation period runs until September 17. Trading on the Exchange begins on October 14.
The Zahras say that going public will present a host of opportunities for the group to grow at a much faster rate now that "a very solid platform" from which it can meet future challenges has been laid. The part equity-part bond issue allows a cross-section of partners to come on board, from private investors to the public, to participate and share in the group's long-term vision.
The closure of the 22-year partnership with the Vassallo Builders Group has been in the offing for over two years with a successful conclusion being reached on how to restructure the company last May.
"It suited us very well from a timing perspective," Mr Zahra Jnr said of Mr Vassallo's decision. "For the Vassallo family, an IPO created an exit route. For our family, taking the company public allows us a vehicle for growth that we did not have before, and it helps us take a traditional family company to a full-blown corporate entity while retaining our family values at the core.
"When there are two families in partnership, under which one is operating and the other is a 'sleeping partner', there has to be high standards of corporate governance and consensus. Otherwise the partnership would not have lasted so successfully for 22 years. These negotiations were carried out in a very amicable fashion and we maintain a good relationship with the Vassallo family going forward."
The CEO emphasised that floating the Island Hotels Group on the stock exchange was also a way for it to be in an optimal position to unleash its business potential.
"Internationally, many family companies do not exploit their full potential because the family grows too big within the business. There are second or third generations who do not necessarily want to be part of the business or do not necessarily have the skills to be part of it, but they feel they have to be there by obligation. Our group does not have that problem today but by taking these steps we will avoid going down that road in 15 years' time."
The CEO pointed out that not only is the Zahra family putting more of its own money on the table, it is also ensuring that there is a strategic thinking team of seven board members around that table, the majority of whom will be non-family members.
"As a family we are going to own 75 per cent which is already a significant message," Mr Zahra Jnr explained. "Whoever invests in the group is doing so on the same conditions that we are. We will continue to operate a high level of corporate governance by ensuring that the board majority is actually non-family and that decisions are taken within the ambits of strict corporate governance rules. All members will be elected by shareholders at the annual general meeting as explained in our memorandum and articles. Out of the seven, three are international individuals, which is a clear indication that we want the board to be thinking on an international level."
Mr Zahra's father has held ambitions to first own a hotel and later go public since he ventured into business with his brother Tony 40 years ago. Together they built the travel, leisure and tourism group, Alpine, and developed and operated the successful Riza Aparthotel.
In 1987, Winston Zahra decided to retire and sold his stake in the Alpine Group to his brother but his retirement was short-lived. A friendship which developed between Mr Vassallo and Mr Zahra, after Vassallo Builders were the contractors for the development of the Riza Aparthotel, was soon to become a partnership and the foundation of Island Hotels Group.
It started with the 250-bed Bugibba Holiday Complex, which in two years was extended to 1,000 beds. The property enjoyed year-round occupancy of 90 per cent.
"We enjoyed a very good reputation with the tour operators," the chairman recalled. "Today, we still operate on the same core principles: good accommodation, good food, service with a smile, and value for money."
No longer fitting its portfolio's profile, the group sold the Bugibba Holiday Complex two years ago.
After completing his studies in the UK in 1991, the younger Winston Zahra returned to Malta and established Island Caterers, an events catering business which grew rapidly.
The former Salina Bay Hotel was acquired a year later. The bed capacity was doubled and the property was completely gutted out and refurbished in 14 months. The Coastline was soon to become a benchmark for four-star properties in Malta. Occupancy levels were very high, partly thanks to a fruitful relationship with Thomson, the UK tour operator.
Soon after the completion of the Coastline, the opportunity arose for the lease of the land on which the Radisson Blu Resort in St Julians now stands. The sprawling five-star property opened in 1997, just 18 months and seven days after construction began, and operated under a franchise agreement with fledgling international hotels group Radisson.
Winston Zahra Snr toyed with the idea of going public around this time but his dream would have to wait another decade as the board thought it best to put it on the back burner.
Two weeks after September 11 in 2001, with international tourism sliding into a major downturn, Island Hotels acquired a family-run hotel at Golden Sands. British vacation ownership expert Bob Trotta, a Zahra family friend, travelled to Malta to view the property and immediately saw its potential. A strategic partnership ensued for the development of a purpose-built timeshare property boasting 337 rooms. Construction on the Radisson Blu Resort and Spa Golden Sands began in August 2003. It was inaugurated 25 months later, just four weeks before it hosted the Commonwealth Heads of Government Meeting, the largest international political event Malta has ever staged.
As the global economy limps out of the most severe recession in decades, Island Hotels Group is ready to take advantage of the upturn with a portfolio of plans for expansion.
The future project for the Radisson Blu Resort and Spa Golden Sands includes the development of units in the Sunrise Tower and the development of conference spaces into new-concept, larger format suites for vacation ownership. The group also has its sights on the development of the old Ħal Ferħ complex if it manages to conclude discussions with the government after the group was the only company to tender for the site a few months ago.
The group also seeks to widen its vacation ownership marketing efforts across the continent and examine further opportunities for joint ventures and new initiatives.
Planning permission is in hand for a stand-alone conference centre to cater for 800 delegates at the Radisson Blu Resort in St Julians, where all public area facilities and landscaping, pool and façade are to be upgraded. Depending on market conditions, the group is also examining the possibility of configuring the resort to cater for other tourism segments, including the possibility of vacation ownership.
Island Hotels have also been granted a permit to extend the Coastline's capacity from 207 rooms to 310. There are also plans for the development of a conference centre. The property's business is secured until 2011 with agreements with tour operator Saga and major international language schools.
New business will be identified for Island Caterers as it seeks to add new venues to its portfolio and explore international opportunities. Its growth will be shaped through the possible acquisition of local operators and the development of contract catering.
Holistically, Island Hotels Group - which was conceived with a seed capital of the equivalent of €375,000 and registered a group profit after tax of €3.9 million in 2008 - is ready to seek its fortunes overseas in earnest.
Its prospects include furthering its relationship with the Rezidor Hotel Group by developing properties under their brand names and capitalising on its affiliation with Saga. Possibilities exist through the relationship developed with Mr Neville and Mr Giggs. Growth can also be achieved through the acquisition of under-performing properties in Malta as the group paves the way to building a solid European company.
The prospects for the industry locally and internationally should, according to general sentiment, begin to improve between the second quarter and second half of next year.
The group chief executive emphasised that despite all the negatives, Island Hotels, which today employs just under 1,000 people, has pursued its investment programme and the business has been "extremely successful especially when one takes the overall economic scenario into consideration".
"The industry runs in cycles - it always has and probably always will," Mr Zahra pointed out. "Sometimes, as an island, we are our own worst enemy in that we don't always react fast enough, and we don't look after the basics properly. But people are increasingly appreciating the value of tourism and its wider effects on the economy. This year there is a bit of a battering on arrivals, much more so with the effect on room rates, and the hotel industry is going to take a hit.
"In comparison, as a group, we are going to see a deterioration in performance which is to be expected in the current economic scenario but we are still very profitable - 2009 for us is going to be a profitable year and the drop we will see between 2008 and 2009 will be nowhere near as bad as the industry average according to the figures that we have in hand."
The World Tourism Organisation forecasts a drop of six per cent but its long-term view is that tourism will grow from one billion to 1.6 billion by 2020.
Mr Zahra Jnr believes that in the greater scheme of things, Malta only needs to attract two million visitors a year spread over the whole year, a tiny percentage of overall European travellers, to strike the proverbial oil.
"We have our history, our culture, our diversity, and our friendliness - yes, we are still friendly towards visitors," Mr Zahra emphasised. "Malta enjoys proximity to mainland Europe, we are English-speaking, and we have a safe country. But there is still the need for overall polish. All we need to do is up the game, all of us collectively, and the government needs to lead by example by encouraging everyone to believe in the country's potential and the potential of each individual. In reality, there are stories of people going the extra mile in this industry every day. They just do not get publicity.
"We need to stop moaning and take collective action to make our country overall more appealing and more accessible to potential visitors. We need to stop treating the phrase 'Product Malta' as a cliché and bring it up to what it needs to be to beat other countries that sound more magical to visit than Malta does today. I am confident that with the right approach this can be done, and I will passionately push this idea until I see it being done."