International Hotel Investments plc is to launch a €30 million, 10-year bond issue carrying an annual interest rate of 6.25 per cent managing director Joseph Fenech told The Sunday Times last week.
This is the fourth bond issue by IHI, Corinthia Group's development arm, and there is an over-allotment option of a further €5 million. The bonds will be redeemable as from 2015 onwards at the issuer's option. Applications for the public will open on June 30.
Mr Fenech explained that the newly raised capital will be utilised for IHI's expansion plans. Two major hotels are currently under construction: the Corinthia Hotel Benghazi and the flagship Corinthia Hotel London on Northumberland Avenue.
Both are particularly prestigious. The 250-room Corinthia Hotel Benghazi will stand on the site of the former Al Jezira Palace Hotel on Ali Wouraieth Street. Wartime leader Benito Mussolini delivered a famous, thunderous speech at the beachfront hotel, just a short drive from Benghazi airport.
The original hotel building will be retained and a back plot and an interconnecting road have been acquired to accommodate the extension of the property. Other than a five-star hotel the development will also include office and residential accommodation.
Corinthia knows Libya well - it has operated a string of ventures in partnership with the country's institutional investment arm for over 40 years. In Benghazi, Libya's second city, Corinthia will be the first five-star entrant just as it was in Tripoli when it opened the Corinthia Bab Africa Hotel. There are many business opportunities in Benghazi, despite the appropriate infrastructure for visitors being scarce. Visitors usually stay at local hotels but there is increasing interest in the city by international chains.
"We were at the forefront of the growth in the hospitality industry that Tripoli witnessed and we expect to have the same effect in Benghazi," Mr Fenech explained. "As it is, with no high quality accommodation in Benghazi, people tend not to stay in the city for very long. Many prefer to commute from Tripoli. The development of a five-star hotel in Benghazi will grow the demand and will further enhance the importance of the city."
The €300 million Corinthia Hotel London project is "very much on track" for its target opening of October 10, 2010. Just a few days ago, IHI made its first drawdown from the €150 million loan facility obtained in May from a multi-national bank syndicate, led by Barclays and including including the Libyan Foreign Bank, the Arab Banking Corporation, and Bank of Valletta.
The former Metropole Hotel on Northumberland Avenue and the adjacent 10, Whitehall Place, were acquired from the Crown Estate a year ago by a consortium owned by IHI and its two principal shareholders, the Libyan Foreign Investment Company and Nakheel Hotels of Dubai.
Mr Fenech pointed out that clinching this loan was a feat in itself given the current international economic climate. In just under five weeks, IHI fulfilled all the conditions precedent attached to the loan - evidencing that licensing, permits, board resolutions, hedging agreements, projections and the like were all in place - to clear the way for seamless, periodical disbursement.
The demolition of some structures within the buildings and asbestos removal is practically completed. The contractor for the project has been appointed and is currently mobilising for works to begin this month. All the consultants have been appointed, and agreement has been concluded with the operator of the specialty restaurant.
Likewise, an agreement has been reached with award-winning spa operators ESPA for the development and eventual operation of what is expected to be the largest and most prestigious spas in London.
Westminster is one of London's most heavily regulated boroughs but neighbours and local authorities have been particularly supportive of the project as IHI intend to embellish and regenerate the area, Mr Fenech pointed out.
Corinthia Hotel London will open with ample time to gear up for 2012, expected to be a bumper year as the capital hosts the Olympics.
He is confident the right numbers will be achieved - one of the prerequisites for securing the loan facility was illustrating how the project would meet stringent interest cover ratios. IHI has also secured a five-year interest rate swap locking the rate until 2014.
"In terms of revenue expectations, the banks appointed commercial property consultants Knight Frank who have a wealth of information on competitive hotel performances.
"On reviewing our internal projections, the experts endorsed our numbers and provided the banks with the required level of comfort that the stringent interest cover ratios will be met," Mr Fenech explained.
IHI was launched as a public company in 2000 to acquire, develop and operate high-end hotels and real estate worldwide under Corinthia's ambitious expansion plan.
With the Corinthia brand enjoying such high repute, IHI needed to build its own identity. In the late 1990s, Corinthia transferred the then five-year-old San Ġorġ Hotel and the site in Budapest where a new Corinthia, one of the city's most luxurious hotels, would stand. The value of Corinthia's equity contribution to IHI at inception was Lm30m.
In March 2000, IHI went to the market with an initial public offering of Lm10m and a Lm5m convertible bond. Between 2000 and 2006, IHI reconstructed the Grand Hotel Royal in Budapest, acquired the Lisbon property and the Nevskij Hotel in St Petersburg.
Corinthia Hotel Lisbon, with an additional four floors, was completed in 2004 and was upgraded from a four- to a five-star property. It is one of the premier hotels in the Portuguese capital and opened in time for the Euro 2004 finals.
By 2005, after IHI acquired the adjoining plots to the Nevskij Hotel in Russia's second city, it painstakingly relocated tenants from these buildings and refurbished the existing hotel rooms.
Between 2006 and 2008, work progressed steadily on the hotel's extension into the two adjacent buildings. A new executive wing now houses over 100 rooms and suites, and over 11,000 square metres of commercial space and office accommodation are now available on Nevskij Prospect, St Petersburg's main thoroughfare. This second stage of development was officially inaugurated late last month.
Another milestone was reached in May 2007 when Dubai-based Istithmar Hotels acquired a 33 per cent stake in IHI for €178 million. Around the same time, Corinthia transferred the Bab Africa Hotel and Commercial Centre in Tripoli and the Corinthia Towers Hotel in Prague to IHI, and in consideration received 192 million one euro shares, €15 million in cash, and assumed the debt levels of the two hotel owning subsidiaries.
The equity subscription by Istithmar was principally used to fund the Nevskij's adjoining blocks project and the investment in the London hotel.
"Notwithstanding that, there has been a significant increase in IHI's asset base, which at December 31, 2008, exceeded €1 billion, the debt level has effectively remained unchanged. It is less than €400 million. In these difficult times, our financial situation is very comfortable," Mr Fenech pointed out.
IHI is marking time and waiting for an upswing in the international economic scene before deciding on the roadmap that will lead to its secondary listing on the London Stock Exchange.