‘The government’s objective while securing its investment is not so much getting a high rate of return as it is creating development opportunities, creating a world class hotel that will help to drive our travel and tourism, and create jobs for a few hundred Guyanese. This hotel will allow us to host conferences and do things that we have not done before. It will help to raise the bar in hospitality in Guyana. Already other hotels are investing in anticipation of this project’
Head of the National Industrial and Commercial Investments Limited (NICIL) Winston Brassington spoke with Stabroek News’ Johann Earle recently on the controversial US$58 million Marriott Hotel project. He outlined several aspects of the investment and sought to clear the air on a number of what he called “misrepresentations” in the press regarding the nature of the investment and the structure of the financing. The following is a full transcript of the interview.
Stabroek News (SN): There was a public advertisement for an equity investor in Marriott. Surely the procurement rules must require that at the end of a bidding process that the investor is identified… this must surely have happened already otherwise they have single-sourced someone.
Winston Brassington (WB): Let me begin by saying that this advertisement which was published in early 2012 in the newspapers was not the first advertisement where we sought parties to work with us in developing this public-private partnership. We started this process in early 1999 when we put out an advertisement inviting anyone who was willing to partner with us in developing this public-private partnership in an open and transparent manner. Our privatisation rules provide that if after you’ve advertised you haven’t received any expressions you can negotiate
with the first party that approaches you.
In this case, we advertised extensively… we sent packages to all of our embassies and consulates abroad. We sent packages to our foreign missions in Guyana with the whole objective of finding an investor who would be interested in pursuing the project in accordance with the framework that we advertised.
We finally got an investor who showed interest through one of our international embassies. The investor was referred to us and based on that we were able to negotiate and execute the necessary agreement to basically have an investor agree to put in US$8 million within the structure.
That investor – and it is a substantial investor – has said to us that when the transaction is completed he is willing to have the details of the transaction made public. But because there is always that risk that the transaction may not be completed they did not want to submit themselves to that disclosure until the deal is completed.
The investor came to us as a result of one of the packages we sent to one of our overseas embassies and consulates. We did not know the investor. All I will say is that the principals are substantial investors.
The transaction has a number of conditions precedent, one of which is that the investor has to be approved by Marriott International. Marriott was given a profile of the potential investor and they carried out their due diligence. Marriott approved the investor a few months later and signed an amendment with AHI to have the new investor come on board. Similarly, Republic Bank Trinidad hired an international firm to do a due diligence on the potential investor.
Another conditions precedent includes a legal agreement with Republic Bank Trinidad for debt financing. Naturally the equity investor is putting part of the financing. The equity investor wants to be comfortable that the remaining money for the investment is also forthcoming.
Once the conditions precedent [is] met – and we said we expect all of these conditions precedent to be met before year end – we will complete our transaction with the investor. The investor will wire the money to the account. We will transfer the shares to the investor once we receive the money. The deal will be considered to have been completed and we will make the details of the investment public.
Public-private partnerships are actually considered to be one form of privatisation. We generally adhere to the principles of transparency and public advertisement. The Procurement Act is not specifically applicable in this situation. What we did is consistent with the Privatisation White Paper.
This project has been on the cards for a while and these issues and the manner in which we are doing it has been in the public domain for quite a while.
SN: Why wasn’t the feasibility study for the project made available earlier?
WB: When we were asked by [AFC leader Khemraj] Ramjattan in Parliament whether there was a feasibility study and whether the Minister of Finance could provide a copy, in our response we said that the study was conducted in 2010 but was being updated by the American firm that did it. At the time of our response the updated feasibility study had not been completed. We did go on in our response to say that the government is willing to have a closed door meeting with the opposition.
What we have done is to release extracts of the study, recognising that the study has information that can be considered to be commercially sensitive – comparison statistics of this project with the Pegasus and with Princess, details on expenses and so on. But we have supplied a substantial level of information and the government is committed to supplying more details to the opposition to what we made public.
SN: You made comparisons of projects in Trinidad and Jamaica but there is no evidence of increasing demand for high-end rooms. Wasn’t Princess Hotel supposed to be for the high end needs and that’s why government loaned money to Buddy Shivraj?
WB: Buddy’s was built specifically for World Cup. Without having the minimum number of rooms in the country Guyana would not have been able to co-participate in hosting the World Cup in 2007. There continues to be demand for high quality rooms. In fact, we have had a number of investors coming to Guyana who have said after having looked at the best we had to offer that they would prefer to go to Trinidad and come back the next day for the meetings. We have investors on record who fly their jets to Guyana have their meetings and fly back out, preferring to stay in Trinidad because of our lack of high end rooms.
We have not had a major hotel brand come to Guyana since the Pegasus, and the Pegasus has been deflagged. The Marriott is the first international brand to come to Guyana in 40 years.
Princess is not an international brand… they are more noted for their casino operations. When we speak of global international brand of quality, we are speaking here of hotels like Hilton and Sheraton and Marriott. That is not to say that Princess is not a good hotel, but it is not one of the recognised global brands of the quality of we are talking about.
SN: How could an investor in a project worth US$51 million—or is it US$58 million?—secure two thirds equity with just US$8 million? This is puzzling the public. Isn’t the debt financing ratio and therefore the charges associated with the loans much too high?
WB: The $58 million is [for the most part] financed with debt and the remainder with equity. The investor is buying 67 per cent of the equity, or 67 per cent of the US$12 million. What they are buying is exactly what we advertised. There is nothing different. The ad speaks of US$12 million in equity. It speaks to the US$27 million of debt, there is nothing new here. Our offer was publicly advertised in the public domain for a long time.
SN: If US$8 million was all that was needed for two thirds ownership, why didn’t government approach local private sector?
WB: Anyone who is talking about ‘we could have done it’ had the opportunity to do it. We advertised over 12 times. There were no restrictions [as to who could express an interest]. We had a lot of information in that advertisement.
The truth is this has not been an easy sell. This is a big project… a big investment. There are a lot of obligations on the investor. They have to meet very high standards to pass Marriott and Republic Bank Trinidad requirements. The equity ranks at the bottom. In any arrangement, equity is paid last and debt is paid first and it is no different here. So [the investor] has to ensure that the business generates enough cash flow to repay that debt and only when that debt is repaid will they get their return. The investor is lucky if he gets back his original investment in the first eight years. So this is not such a fantastic deal. But this is an important project, transparently done, available for all to look at and what we are doing is exactly in accordance with what we said in the ad and in what we said in the answers provided in Parliament.
SN: Given that the state’s equity is US$4 million and you have advanced $2 billion, when will the state recover this?
WB: Though the project is feasible it is not that attractive to investors and so we have set our debt so it is going to be repaid as principal only. We are waiving our return on our debt. But it is debt and we are getting repaid that debt. That debt would rank higher than the equity. Providing there is sufficient cash, the investor will get his return up to 15 per cent before the debt is repaid to us. After the debt is repaid, we will then get our return up to 15 per cent, and then we share pro rata. We have done it in such a way so as to make it attractive to the investor, although we are saying it is not that attractive. We have done a lot of work to try and attract people and we are happy that we have concluded the agreement.
Because we are waiting some of our return, it is lower than that of the investors. It is intended to be a catalyst to [bringing in] $40 million and a catalyst to create a world class hotel which Guyana badly needs. We have a tangible asset that you could see, that you could hold, that will be there for life that we will have a share of and be repaid from it.
And our return at 6 per cent is higher than the 1 or 2 per cent that we would get if we put our money in the bank. So we are still doing better than our traditional investment.
Each of us has different objectives. The government’s objective while securing its investment is not so much getting a high rate of return as it is creating development opportunities, creating a world class hotel that will help to drive our travel and tourism, and create jobs for a few hundred Guyanese. This hotel will allow us to host conferences and do things that we have not done before. It will help to raise the bar in hospitality in Guyana. Already other hotels are investing in anticipation of this project.
SN: Isn’t there a real risk that this hotel will end up in the hands of the debt financiers and defeat the whole purpose of a five-star hotel?
WB: We have a feasibility study by a world class firm that [has] done such projects in the region, including quite a few in Guyana. This firm is usually very conservative and they said that this project will have an overall project return of over 11 per cent.
If anything went wrong, you still have that hotel project. You still have the property built. All of the money is going into the physical infrastructure – the structure, the outfitting, that is worth something. This is not a feasibility study on an intangible where it goes away. So even if anything went wrong, the asset will always be there. It may change hands if something went terribly wrong, but the asset will still be there to be operated.
SN: There is a widely held view that the Marriott project is an obsession for two people: former President Jagdeo and yourself and is to be pursued no matter the cost and price. There is a view that this determination is a reaction to the loss of the Pegasus Hotel to Mr [Robert] Badal.
WB: It is on public record that this project has been on the cards for more than a decade. In fact I have many newspaper articles from Stabroek News in which Stabroek News’ journalists doubted that Marriott would ever come to Guyana, way before Badal took over the Pegasus. We moved and we cleared the site and moved sewage pipes way before Badal took over the Pegasus.
We went to Parliament and amended the law so that hotels with more than 150 rooms could have casinos. This project started long before and there is clear evidence of that. All we were doing was seeking to follow through on what was a project that we had already invested in in terms of moving the pipes and clearing the site.
SN: How do you justify the government financing the removal of sewerage pipes and proposing a low lease for the land on which the hotel is to be sited? Isn’t it a case again of going all out for this project no matter the cost?
WB: Governments are there to provide investment infrastructure incentives. Let’s begin with what we lease this property at. We made public that lease last year. We also stated that the company has the option to buy for US$1 million, and the lease terms that we have are roughly the same as what we had with the previous developer. We didn’t do anything new. And the lease rates are what we have for industrial estates. And guess what? You have a few acres of land with a US$60 million investment. The industrial estates don’t invest that much. Governments across the region lease land at peppercorn rent, provide substantial incentives, help to participate in the financing of these projects, sometimes owning it outright, so as to encourage and catalyse the investment. We have made public all of these leases and agreements. We have many other comparable examples of leases which may not be market.