A meeting is to be called for people holding the €34.4 million bonds issued by the Island Hotels Group, following the news that it is being acquired by hotel giant Corinthia.
The 2014 bond was to be split between €16 million worth of projects to upgrade the Island Hotel Group’s Radisson Blu at St Julian’s, and €4 million to develop the Costa coffee brand in Spain and beyond, with the balance to be spent on general corporate funding.
“I would like to assure all bond holders that with the current operations and cash flows that IHG is generating, the bond issued last year remains sustainable even without the redevelopment project of the Radisson in St Julian’s. This will become even more evident when we publish our year end results for 2014 which are very strong,” Island Hotels CEO Winston Zahra Jr told The Sunday Times of Malta.
However, when news broke about plans for extensive development by third parties at St George’s Bay, Island Hotels Group announced they would not go ahead with the Radisson Blu St Julian’s project but would merely refurbish the hotel.
Acquisition sends signal that Corinthia is not too concerned with what is happening in Libya and Russia
The subsequent news on Friday of Corinthia’s outright acquisition of the entire Island Hotels Group – the first involving two publicly-listed companies – took the business community by surprise. Corinthia – through its investment arm International Hotels Investment – will acquire all Island Hotel Group’s interests, including the recently-acquired Costa franchise and the catering arm.
Although there had been numerous rumours over the past few months, most believed that the agreement would only cover the Radisson Blu Resort, whose footprint was crucial to Corinthia’s plans to build a leading six-star resort in St Julian’s.
Island Caterers was the major rival to Catermax, Corinthia’s joint venture with the Vassallo Group, owned by one of island’s founders, Nazzareno Vassallo, who sold his interest in Island group in 2009.
Corinthia will effectively pay €36 million spread over some 18 months, as well as €9 million worth of shares. It will be paying €1 for the shares, which were selling at 85 cents, showing that Island’s shares were undervalued by the market.
Island will continue with all its operations, albeit as a subsidiary. Mr Zahra Jr will still be the CEO and chairman of Island Hotels.
Stockbroker Edward Rizzo saw the move as a positive one for Corinthia. “The acquisition sends a signal that Corinthia is not too concerned with what is happening in Libya and Russia, where they have hotels. Going forward, these will also be a smaller component of their portfolio,” he said. Mr Rizzo said the deal also meant Corinthia would benefit from the timeshare-based model behind the Radisson Blu Hotel at Golden Sands, one of the most profitable hotels on the island.
Hoteliers were intrigued by the announcement. “I can see why Corinthia would buy the Radisson at St Julian’s but why would it want to take on all the rest of the group? The question is whether Island would have been interested in only selling the St Julian’s property...” one hotelier said, declining to be identified.
Apart from the Radisson hotels, the Island group has a retail and event catering business (Island Caterers, Montekristo Estates and Papillion Caterers). The group also owns the former Ħal-Ferħ site, measuring 83,000 square metres, with permits to develop it as the Oasis Project.
The Island Hotels Group had annual revenues of around €35 million.
It also had €41.5 million in bank loans, corporate bonds and other borrowings from related companies, which a hotelier source said was in line with industry benchmarks. It had recently sold the Coastline Hotel for €14 million.