The unfinished Grand Hyatt hotel has already cost Rs.15 billion to the public as its main shareholders are the Employees’ Provident Fund (EPF), Sri Lanka Insurance and Litro Gas—all state-owned organisations accountable to people.
Explaining the rationale behind the moves to divest Grand Hyatt, as proposed in several budget speeches, the Finance and Mass Media Ministry said these state-owned institutions either have to pour in more money or borrow at higher rates to complete the hotel.
“Public money, especially that of the EPF, should not be spent on building hotels, where the returns on investment can take many years.
Therefore, the Hyatt hotel has to be divested to a reputable investor with the financial strength to complete the hotel, without this being a burden to the state,” a Finance and Mass Media Ministry statement said.
Similarly, it was pointed out that an upgrade to The Hilton Colombo owned by the Treasury will cost over Rs.4 billion. Hilton badly needs an upgrade to its rooms, which have not been done for 30 years.
Also, this hotel, which is a profitable operation, has a foundation built for an additional hotel tower and two acres of land, on which the new investment in commercial property or serviced apartments can take place.
“As a government-owned enterprise, the hotel does not have the financial strength to undertake these new investments and if it does, the government will have to fund this or expensive loans have to be taken.
Therefore, it is justified to divest this hotel to a financially strong investor, who can proceed with these new investments and generate more employment opportunities,” the statement said.
It further added that the government is committed to give a portion of shares in The Hilton Colombo to its employees on a scheme yet to be finalised.
Meanwhile, Lazard Asia of Singapore and MTI Consulting of Sri Lanka, have been selected as financial advisors to the sale, following a transparent mechanism with the approval of the Cabinet.
They were selected out of 16 international, local and foreign financial advisory firms.
The Finance and Mass Media Ministry statement said a Cabinet-appointed negotiating committee would be appointed to overlook the divestiture process with the assistance of financial advisers and the National Agency for Public-Private Partnership.
The first step in the process is to call for expressions of interest (EOI) for the purpose of identifying who the bidding party is.
Via the EOI advertisement placed, interested parties have to indicate their business, financial strength and which hotel asset they have an interest in purchasing.
When they contact the financial advisers, the investors will be sent a simple one-page format to fill out the basic information about themselves and information on the hotels that is non-confidential will be given to them.
If the investors need more time to respond to the one-page format, they can request for such. Hence, the EOI does not require a priced bid.
The statement said Lazard and MTI, through their global offices, have already begun to reach out to international real estate investors covering many countries.
Why this is done this way is that both hotels are governed by management agreements with Hilton and Hyatt International hotel management companies and these agreements have confidentiality clauses, which restrict the hotel owning companies from releasing sensitive commercial information.
It is for this reason that the parties who express interest will be first shortlisted and then will be required to sign a non-disclosure and confidentiality agreement.
Only after this the investors will be given more than 100 pages of detailed financial and other information and access to a security controlled data room.
It is after this that the transparent bidding process will start under the supervision of the relevant Cabinet-appointed negotiating committee, where the prospective investors will have ample time over several months to prepare financial bids and bid conditions.