The cost of the Marriott Hotel could effectively be US$100M with the two Hong Kong investors owning 67% of it for a paltry US$8M, according to former Auditor General Anand Goolsarran who again roasted the terms of the deal and its lack of transparency.
In his column appearing in today’s Stabroek News, Goolsarran used the government’s own figures to argue his case that the taxpayers of the country were getting a raw deal.
Noting that equity participation plus debt financing for the hotel totalled US$58M, Goolsarran added to this figure US$20M for what he said was the estimated value of the “virtual giveaway of seven acres of prime ocean property”. The land is being leased by the special purposes company set up by the government, Atlantic Hotel Inc (AHI) for US$120 per month with the option to buy.
Goolsarran also added to this figure the estimated interest charges over the three-year construction period for the debt-financed component and said this could easily add another US$6.2M to the bottom line. The former auditor general also factored into the final cost figure the US$2M that government holding company NICIL spent on development and design costs prior to the closing of the deal in addition to the US$2.7M for rerouting the Georgetown sewerage system and the dismantling of the Government Pharmacy Bond and its relocation.
“If (the value of the land) is taken into account in addition to the various concessions granted, the cost of the hotel could very well reach US$100 million. Imagine someone putting up US$8 million in a US$100 million investment and in the process acquires 67 per cent ownership of the project!” Goolsarran declared.
The columnist also expressed doubt over the cost of the hotel and the loan arrangements.
He said that critics have said that based on research carried out it would cost about US$100,000 per room for a Marriott-type hotel, excluding the cost of the land. This, he noted works out to US$19.7 million for the proposed 197-room hotel, compared with the present estimated price tag of US$63.2 million.
He reiterated what others have also stated that the project will repay to government holding company, NICIL the principal only of its US$15.5M loan.
“There are no interest charges nor is there any indication when the loan will be repaid. NICIL will therefore be subsidising the project to the extent of interest charges foregone. In addition, the NICIL loan is subordinate to that of the syndicated loan of US$27 million facilitated by the Republic Bank of Trinidad and Tobago. This means that should the project run into financial difficulties, the latter gets preference over the former in terms of the repayment of the loans. Since NICIL is a state-owned company, it means that it is the Government, and hence taxpayers, who stand to lose”, Goolsarran contended.
He also blasted the structure of the financing deal. Goolsarran said that with 20.5 per cent financing through equity and 79.5 per cent through loans, the project’s finance charges are costly as was the case of the Amaila Falls Hydro Project.
“Debt servicing will therefore be a major factor. Assuming an interest rate of 10 per cent, interest charges over the three-year period of construction will amount to approximately US$6.2 million, if the loan resources of US$31 million (excluding NICIL’s loan) are drawn evenly during the construction phase. This will increase the construction cost to a minimum of US$69.4 million”, he posited.
Goolsarran noted that in every year of operation, funds would have to be set aside to pay interest charges before any profit is determined.
“Had more equity been invested in the project, say 60 per cent, not only would interest charges be significantly lower but also the overall cost of the project. Unlike loans, equity investment attracts neither interest nor repayment. Would it not have been better for NICIL to increase its equity investment from US$4 million to US$19.5 million using the loan resources that it is putting up?” he asked.
If this was done he noted that government’s interest would have increased to 62% which would be a fair figure given all of the other indirect costs to the government including the value of the land.
On the question of the transparency of the deal, Goolsarran pointed out that information on the investor had not been disclosed for over a year. Further the selection process produced investors who were not experienced hotel operators despite the fact that NICIL was seeking such in its advertisements. He noted that the twelve public advertisements placed by NICIL solicited expressions from experienced operators who had “already established themselves as a brand regionally or internationally and can demonstrate extensive knowledge of the particular field of operation.”
Goolsarran further queried the arrangements for the selection of the successful bidder. He said that the National Procurement and Tender Administration Board (NPTAB) had not been involved in scrutinizing the bids and argued that AHI’s rules were hardly likely to conform to the Procurement Act.
“AHI is wholly owned by NICIL which is a government-owned company. The latter has been retaining funds meant for the Treasury and using them for various activities without Parliamentary appro-val. Apart from these constitutional violations, AHI was obliged to involve the NPTAB in the assessment of the bids since in all probability the former would not have its own procurement rules that are consistent with the Procurement Act. Even if this were so, it is not known whether the NPTAB had given its approval to such rules”, Goolsarran asserted.
Last month, two Hong Kong businessmen, Victor How Chung Chan and Xu Han, were identified as the principals behind the private investment in the hotel.
Chan was described as having diverse and substantial investment interests in both Hong Kong and China. He was listed as an Executive Director of the REXLOT Group and the single largest shareholder and Founder and Director of the REX Resources Group. The former is said to be the leading lottery system and distribution company in China, with extensive operations in China’s lottery market, through its local subsidiaries and international joint ventures, while the latter is said to be primarily engaged in gold, coal, rare earth and other metals, mining exploration and development, both in China and internationally.
Chan is said to be the leading investor and shareholder of China Gamma Group, which is listed on the main board of Hong Kong Stock Exchange, with a market capitalisation of over HK$600 million (approximately US$77M); and the founder of REXCAPITAL Partners, which is a private investment group with over HK$1billion in financial investments.
Han is said to be a long-standing business associate of Chan and he holds graduate degrees from prominent US and Hong Kong universities. Additionally, they said he has over 30 years of global experience in both the public and private sectors, such as finance, gaming, and mining.
