Sound finances enable Corinthia to tap overseas capital, property markets

Corinthia Group is ideally positioned to exploit the unique opportunities currently presented by the international capital and property markets thanks to its remarkable capital base and healthy balance sheet, chairman and chief executive officer Alfred Pisani told The Sunday Times.

The hotels group last year suggested it was considering the possibility of taking one of its subsidiaries to an overseas market, and that it was actively seeking to acquire properties in major capitals.

"In Malta, a company that is listed on the stock exchange deals directly with the public. That does not happen in other parts of the world where companies deal with institutions which then approach market makers to sell to the public," Mr Pisani explained.

"Take the case of IHI: If an institutional investor buys €5 million in equity in the company, there is no way that can be resold on the local stock exchange. That is why we have to take IHI to a much larger liquid market overseas. Our size has forced us in that direction - it leaves us no alternative."

That is not to mean that IHI is to turn its back on Malta's capital market: IHI plans a €25 million bond issue later this year partly to replace a maturing 10-year bond and also using the balance to replace an existing bank loan. Group activity on the Malta Stock Exchange remains strong - its subsidiary Corinthia Finance plc has just announced a €15 million nine-year bond issue guaranteed by Corinthia Palace Hotel Company Ltd.

IHI's prudent approach to business, coupled with the board's fine-tuned acumen and knowledge of the industry in which it operates worldwide, has served it in good stead. Rather than catching the company off guard, the international economic crisis presented IHI with an attractive opportunity to invest in major markets, veering from its original strategy to concentrate solely on developing markets like North Africa and Eastern Europe.

The strategy's first breakthrough came in November 2008, at the height of the crisis, when a Barclays-led banking syndicate including the Libyan Foreign Bank, Bank of Valletta and the Arab Banking Corporation, approved a £135 million loan for the acquisition and development of the former Metropole Hotel on Northumberland Avenue and the adjacent 10, Whitehall Place, in London. Even the Financial Times was impressed that a Maltese company had managed to beat the credit crunch.

Mr Pisani describes progress at the 300-room Corinthia Hotel London, earmarked to be the hotel chain's flagship property, as "on time, on track and on budget", and its soft opening will be held as announced on October 10.

Early in 2009, the chairman had already hinted IHI had set its sights on key capital cities.

This week he confirmed that the company was negotiating the establishment of Corinthia's brand presence in Paris, Rome and New York "in a very serious and effective manner".

"The situation for IHI is quite opportune," Mr Pisani pointed out. "Obviously, hotels have suffered over the past two years, but because IHI is an owning and developing company, it is at a major advantage. It is able to buy and develop at a good price. Initially, we developed hotels in emerging countries because we were able to achieve better capital gains. However, now we cannot overlook the present situation where interesting properties at competitive prices are becoming available in Paris, Rome, New York. Now is the time to take advantage of these opportunities and be able to fly the Corinthia flag in these cities."

IHI's ambitions are far-reaching. Led by a "religiously dedicated" management team tasked with realising the group's vision, the company has set itself targets to conclude a number of projects in Moscow, Kiev, Paris, Rome and New York over the next few years.

Meanwhile, IHI is also concentrating on strengthening its development team with professionals working to identify investment opportunities in regions like Europe, the Far East and Africa.

One of Corinthia's foremost current projects is the €300 million 40-storey Medina Tower in Tripoli, which will incorporate residential and office space, a congress hall and retail outlets. Corinthia has a 50 per cent stake in the mixed-use development along what is fast becoming the Libyan capital's main business boulevard.

Now that Palm City, the luxury residential village in Janzour, is complete and set for full occupancy by June, the company is now focussed on finalising plans for its 4.5-hectare extension. Designs feature a 156-room hotel, 220 apartments, a lagoon-style pool, a yacht marina, and an entertainment centre featuring cinemas, a bowling alley and shops, all of which will give added value to the current residents' tenancy.

Construction on the €100 million 250-room Corinthia Hotel and Residences in Libya's second largest city Benghazi is underway. The project, in which IHI has a 75 per cent holding, incorporates 30 residences and 4,000 square metres of office space.

Mixed-use developments are now part and parcel of the group's growth strategy, although hotels continue to be the company's core competence. But the additional real estate serves a fundamental financial purpose.

"Hotels are a long-term investment," Mr Pisani explained. "Sometimes investors complain when a dividend is not recommended, but that decision is ultimately in their interest too. The reduction in bank loans - and their eventual repayment - results in a considerable increase in asset value. It means the company and the shareholders are better off."

Mr Pisani pointed out that IHI decided to venture into real estate like residential and commercial projects so that these can be sold to realise immediate capital gains for distribution. Under this strategy, IHI is able to support and maintain the development of its hotel chain which is not intended for sale.

"Quite simply, there is hidden worth in the appreciation of the property IHI holds. The company sells non-core assets to raise funds. The board feels it has struck a good balance with this policy," the chairman said.

Meanwhile, the completion of the London project is IHI's most immediate priority. Mr Pisani said sample rooms, in their third and final design guise, were currently being checked, and a marketing campaign was in full swing. Every month, celebrity chef Massimo Riccioli, of Rome's La Rosetta fame, is hosting London's politicians, ambassadors, artists and celebrities to "the best lunch in the City" after a tour of the property.

The hotel's exclusive spa, which will be operated by world leaders Espa, is taking shape, and work on the 12 adjacent apartments, which promise to be among London's most desirable properties, is progressing well.