Whatever was behind any honest intentions of the Hotels and Resorts Limited (HRL), or GEMS debacle, it is difficult to imagine a worse outcome so far.
Government’s decision, despite the current austerity situation to guarantee yet another loan to this failed entity, frankly defies belief and clearly will not have a happy ending.
This latest loan is for $5.55 million at an interest rate of 7.75 per cent, arrangement fee of $350 000 and monthly repayments of $55 000. Included is a $300 000 overdraft facility which attracts an administration charge of $5 000 each month.
HRL now operate a single hotel, Blue Horizon with just 67 rooms. Another 50 additional rooms acquired at the time of purchase (1997) remain derelict all these years later. Savannah and Time Out at the Gap are leased and operated by private sector interests. Three other properties originally in the GEMS portfolio were sold and it still remains unclear what price they realized and exactly where those funds went.
Despite repeated pledges of transparency and accountability, apart from a tiny private shareholding, the sole owner of HRL (the Barbadian taxpayer) is left almost completely in the dark.
Statutory corporations appear not to have any obligation to publish their annual audited accounts, unlike publicly traded companies.
Let’s just look at this particular latest bailout first. To meet the monthly commitment, based on a typical 60 per cent average annual occupancy, interest and capital repayments alone will amount to $49.75 per occupied room night. Put another way, 23 per cent of the rooms have to be filled at published summer rack rate (before taxes), just to meet the new debt burden. That’s before any operational or maintenance expenses.
Unless a substantial proportion of their room stock is heavily discounted and sold through tour operators, its implausible occupancy levels will improve as direct booking consumers become more aware and use benchmarks like TripAdvisor monitor previous guest satisfaction levels.
Blue Horizon is currently positioned at number 74 out of 102 Barbadian Hotels on TripAdvisor with a reviewer’s first-hand experience rating of just 49 per cent out of a maximum 100 per cent achievable. Simply expressed, over half of previous guests who have posted their personal observations would not either return or recommend this hotel to a friend. Clearly, from comments made, the property urgently needs to be upgraded.
What other economic liabilities are in the GEMS closet? In an article headlined Reports free of scandal published in the Nation on March 28, 2013, Senator Maxine McClean stated that “the Government of the day by way of an agreement dated July 22, 2002, loaned Hotels and Resorts Limited more than $145 million”, adding “that was not being serviced and the Cabinet had agreed to debt relief for HRL by way of a write-off of $160 million”.
By January of last year, the Auditor General’s report to Parliament contained the following comments: “Given the poor finances of this entity, it was always unlikely that repayments would have materialized. The outstanding balance on this loan was reported as $85.4 million at March 31, 2012 with accumulated interest of $30.4 million”.
So even after the previous massive write-off, there still remains this huge deficit. Back in February 2010, then Minister of Economic Affairs, Dr David Estwick, placed an estimated book value of all the GEMS-owned properties “at only $74 million”. Under current trading conditions, it is doubtful that value has increased, or the circumstances improved sufficiently in which to service any more debt. So why is Government guaranteeing the loan?
• Adrian Loveridge is a hotelier of four decades’ standing.
