International Hotel Investments plc, the third largest company by market capitalisation listed on the stock exchange, comes to the market with its sixth bond in 10 years, in a bid to slightly re-engineer its balance sheet, managing director Joseph Fenech told The Sunday Times.
With this latest issue, the total bonds offered by the Corinthia Group amount to €185 million, consolidating its position as the leading issuer of bonds on the Maltese capital markets.
The new 10-year bonds bear an interest rate of 6.25 per cent per annum but may be redeemed from 2017, at the issuer's discretion. Subscriptions open on March 24.
"Throughout the difficult and challenging period in 2009, we maintained our policy of conservative debt leverage," Mr Fenech said. "As at September 30, 2009, our debt-to-equity ratio was limited to 31 per cent. Mindful of this conservative gearing ratio, we are raising €25 million through this bond issue to re-engineer the balance sheet, without increasing further our debt."
Mr Fenech explained that this latest bond will replace a €11.6 million bond which matures on May 29, as well as repay a €12 million bank loan.
"The value of the Corinthia Hotel St Petersburg and adjoining buildings, which are hypothecated in favour of the bankers providing this loan, is estimated at over €300 million, and it did not make business sense to retain this loan facility with this high level of collateral," Mr Fenech added.
IHI has an asset base of over €1 billion. Despite last year's challenges IHI still boasts "a very healthy" interest cover of over 2.5 times, which Mr Fenech attributed to the company's prudent debt levels. He added that even with revenue reduction caused by a combination of lower hotel room rates and decreases in occupancy, profitability was retained at 31 per cent of revenue in 2009, which is only a slight drop from the 33 per cent recorded in 2008.
This year, IHI will continue to pursue its ambitious acquisition strategy with a view to establishing the Corinthia brand in major cities, increase the brand's global recognition, and increase its investments in mixed use developments.
Similarly to other hotel groups, IHI was not immune to the recessionary impact on worldwide tourism. After year-on-year increases in world travel, 2009 registered a five per cent drop in international tourism figures. IHI took concrete measures to mitigate the decrease in revenue and, among other steps, embarked on a carefully designed cost-cutting drive that preserved service standards at all its properties.
The World Tourism Organisation forecasts a three to four per cent increase in travel for 2010. Mr Fenech said IHI was likewise witnessing encouraging signs of pick-up in demand.
Last year, the Corinthia hotels' key area of business - the meetings, incentives, conventions and events sector - was the hardest hit, but enquiries have started to improve and a higher percentage of these are now translating into confirmations, Mr Fenech pointed out.
"We are seeing an improvement in expectation," he confirmed. "The expectation is that the momentum will increase further throughout the year. The first half of the current year is looking better than 2009 and there is anticipation for further recovery in the second half of the year."
IHI's capital markets experience has shown consistent loyalty from existing bondholders. Current holders of the IHI convertible bonds which mature on May 29 who are interested in converting their existing holding into new bonds are entitled to a guaranteed allotment. Additionally, €8.2 million has also been set aside for registered bondholders and shareholders of the public companies within the Corinthia Group - IHI, Corinthia Finance plc, and Mediterranean Investments Holding plc.
Applicants whose request for the recent €15 million Corinthia Finance bond issue were scaled down due to oversubscription, will also be given preference. The general public will be able to participate in the remaining €5 million share of the bond issue.