Ukraine war puts Corinthia Moscow project on hold

IHI forced to repay in full Russian bank loan of €40 million due to sanctions

Corinthia Moscow
Corinthia Moscow

The Russian invasion in Ukraine has led to a change in plans for the Corinthia hotel brand’s plans to expand on its Moscow project, as well as immediate action to repay a €40 million loan with a Russian bank.

The war in Ukraine has negatively impacted the Corinthia Hotel and Commercial Centre in St Petersburg, in Russia, where its project in Moscow, in which IHI has a 10% shareholding, has also been put on hold.

“IHI’s interest in St Petersburg represents approximately 5.6% of the Group’s total revenue and 8% assets. It is pertinent to point out that due to the uncertainties brought about by the situation in Russia we took the immediate initiative to repay in advance and in full the €40 million loan that was on balance for the Hotel and Commercial centre in St Petersburg,” Pisani said.

IHI had acquired five properties on the St Petersburg’s main boulevard in January 2022 by way of an amicable debt restructuring process involving the government of Austria as creditor and various Russian state bodies as counter parties. The acquisition was shortly followed by a comprehensive refurbishment and reconstruction of the three main buildings in the assemblage, resulting in a new five-star Corinthia Hotel and a prominent commercial centre offering offices and retail areas for rent.

“From our angle, as owners of property, which is different to being solely operators or franchisors, our focus is that of protecting our shareholders’ full ownership rights, as indeed several other hospitality companies owning property in the country have done,” CEO Simon Naudi said.

Naudi said that IHI had acted on advice to fully repay epay an outstanding loan totalling some €40 million to a Russian bank which was set to become subject to EU sanctions.

“This significant and unplanned claim on our cash reserves had of course bore down heavily upon our immediate term cash flow position, which we have mitigated partly, to the tune of €24.5 million, by tapping into EU-subsidised loans intended to support companies impacted by the conflict. Meanwhile, a restructuring of our corporate set up in St Petersburg is underway. On the other hand, our ability to identify €40 million at short notice is in itself testament to the financial wellbeing of the group,” Naudi said.

The Maltese hotel chain International Hotel Investments, which owns the Corinthia brand, also reported a massive doubling in energy costs across its entire hotel chain.

Hit by the effects of pandemic lockdowns and soon after the onset of rising inflation, IHI executive chairman and founder Alfred Pisani said his hotel group had been hit by rising cost of wages, fuels and a wide variety of goods. Energy alone, Pisani said, had grown by 93.48% year on year in costs, together with an increase in borrowing costs with the rise in interest rates that resulted in response to inflation.

Pisani said that in the face of these challenges, Corinthia had sustained a healthy recovery with a reduction in costs, and to have staffing levels reduced by 15% below 2019. “We have asked management to keep constant watch and active control of our energy consumption, which combined efforts have had a very positive result,” Pisani said.

Operating profit before depreciation and fair value adjustments EBITDA for 2022 amounted to €51.7 million, an improvement of €25.2 million. In 2019 EBITDA hit €69.8 million.

2022 revenue was at €238.2 million, with the hotels segment increasing by 95% year on year. The overall revenue level stood at 89% of 2019.

Pisani said IHI was forecasting a further improvement in our performance, which should bring the group closer to 2019 results.

IHI, with its globally recognised Corinthia brand, now expects to be operating seven new properties by 2024, including Brussels, Rome, New York, Doha, and Bucharest, as well as having signed a management agreement for a hotel in Riyad, Saudi Arabia.

In addition, plans on the Corinthia Oasis, formerly known as Hal Ferh in Malta, incorporating a hotel of 162 keys and 25 hotel-serviced villas, are well advanced as works on the detailed designs have progressed significantly whilst works on the road widening are currently underway.

Pisani also said IHI held several meetings with distinguished personalities in Oman, UAE, Qatar and Saudi Arabia where his group is planning three to four new hotel management agreements in the next 12 months, particularly in Saudi Arabia, Oman and possibly Dubai.

In Jeddah, Pisani said IHI had signed an MOU with Jeddah Central Development Company, a wholly-owned company of Saudi Arabia’s Public Investment Fund (PIF) for its hotel management company CHL, and its project managers QP, to develop and operate assets within the Marina District.

Sale of Prague Hotel

Pisani said in IHI’s annual report that while the Corinthia brand is focused on the management of third-party hotel properties – what he calls “a faster and less capital-intensive way to display our Corinthia flag” – he said that as a developer IHI realises a minimum 20% gain when it buys properties to develop at competitive rates.

“Subsequently, with the maturity of the business, it is estimated that the best time to sell a successful hotel is between five and seven years. This would be the norm to realise the maximum gain, allowing us the opportunity to partially re-invest and distribute dividends.”

IHI has also put the Corinthia Hotel in Prague on the market again after it had nearly completed the sale before the pandemic put a halt to the deal. “Separately, there is an additional plot of land adjacent to the Prague Hotel, which could also be developed for offices. The location of both the hotel and adjacent site is excellent as it commands magnificent views of Prague and is only 100 metres away from the underground, being just two stops away from central Prague.”


Prospective bond listing

Today IHI carries out property ownership, while group companies CDI develops hotels, and carries out project management through QP, hotel management through CHL, and industrial catering through Corinthia Caterers.

“This multi-faceted approach has proved very beneficial, especially when certain difficulties may hinder some activities but allow others to operate profitably. We are today quite a unique organisation as few companies worldwide offer such diverse services of a one-stop shop. And I am confident this evolution will continue to progress further,” Pisani told shareholders in IHI’s annual report.

He said IHI is setting up a second brand for upscale hotels which cannot be serviced by the Corinthia brand. The Verdi Hotels are planned to launch later in 2023 and expand internationally in the next 12-15 months, managing hotels which are both internally owned as also others owned by existing partners and other third parties.

Pisani said that IHI would be planning a second listing to increase the free float of minimum of 25%, raising some 250 million shares. “One can only imagine the company’s potential growth with such funds in hand,” Pisani said. “Going for a second listing is not a short-term project. Much preparation is needed with the support of our international brokers.”

More in Business