Malawi Government has dodged bailing out debt-ridden Bingu hotel complex as National Bank of Malawi (NBM) zeroes in on the facility to get its overdue repayment, Nation on Sunday has learnt.
Both the Ministry of Tourism and Treasury have said Umodzi Holdings Limited (UHL)—a vehicle that government formed to warehouse the Bingu wa Mutharika Conference Centre, the President Hotel and Presidential Village as well as oversee their commercial management—should sort out the financial mess on its own.
Yet it is government’s procrastination to find a management partner to operate Umodzi Park—as the three facilities are known—that has led to its inability to generate revenue and meet its obligations, according to the complex’s overseers.
Apart from authorities’ delays to appoint an operator, it was government that forced the loan on Umodzi in a desperate bid to make the hotel complex ready for the African Union (AU) Heads of Summit in July 2012. The summit was later cancelled and shifted to Ethiopia.
Nation on Sunday understands that when NBM recently wrote UHL demanding a K327 million (US$782 296) repayment, the Umodzi Board wrote Treasury—which holds the hotel complex’s shareholding on behalf of government—to ask for a bailout package to pay the bank, the problem was thrown back at the struggling entity.
Ministry of Finance spokesperson Nations Msowoya confirmed in an e-mail interview last week that government was made aware of the NBM issue, but said UHL should sort it out.
“We have advised the board of the UHL to discuss the matter with National Bank to agree on an amicable repayment plan,” he said.
In a separate interview, Minister of Tourism Moses Kunkuyu said last week that since management of the hotel and the villas was handed over to UHL, the company should clear the liabilities.
But according to UHL board chairperson Francis Mbilizi, the company is not in a position to pay NBM since it is not actively in business in the absence of an operator.
Umodzi’s financial troubles started when government—just prior to the AU Summit, approved that UHL should obtain a K1 billion loan facility from NBM to operationalise Umodzi Park in readiness for the summit. Umodzi Park was used as collateral.
Apparently, the facilities—constructed with a loan from China—did not have other operating equipment and fittings.
Government, as shareholder, was required to fully furnish and equip the facilities for operations and provide the working capital.
Within the same May period, government also directed that Sunbird Tourism Limited should manage the hotel in the interim as the search for the permanent operator went on.
Mbilizi said out of the approved K1 billion (US$2392 344) NBM facility about K210 million (US$502 392) was drawn and paid to the various suppliers in South Africa from where Sunbird mobilised and sourced various items and equipment to be fitted in the properties.
The various items and equipment bought from South Africa were instead shipped into the country for the Sadc Summit, and continue to be in use during functions at the Conference Centre and Presidential Villas to this day, he said.
Mbilizi said as of December 2013—18 months later—the loan had accumulated to K327 million due to fluctuation of interest on the market over the period, with interests alone accounting for K117 million.
He said at the time of obtaining the loan, the business model for the properties presented positive projection for repayments once the facilities are fully operational.
Mbilizi, however, said since the facilities have not been in operation, especially the hotel side which is the cash cow, Umodzi has not been able to service the loan.
“The absence of the manager was highlighted as the main cause for the non-performance of the credit facility during a review with the bank.
“It is expected that once the operator is on site, the properties will be able to generate sufficient revenues to service its commitments with the bank. The bank has been appraised on the steps that Umodzi has taken and a loan repayment plan is being discussed between the parties,” he said.
National Bank chief marketing officer Wilkins Mijiga said it is against the law and banking ethics to discuss individual customer’s and even non-customer’s financial affairs with any third party or the media unless so ordered by the courts.
It is unclear when the operator will be on site. A few weeks ago, Nation on Sunday reported that contractual disagreements during negotiations with government’s preferred manager—Legacy Hotels—was derailing the complex’s business takeoff.
The deal should have been finalised by December 2013. Legacy was offered the deal seven months earlier, in May
President Joyce Banda’s move early last year to cancel a hotel management deal with Peermont, the initial winner, in favour of Legacy, has also been at the centre of the delays.
After cancelling Peermont negotiations and shelving a draft contract, President Banda directed that a special restricted tender that included Legacy, which had earlier not submitted a bid despite being invited, be processed.
But Weekend Nation established last year that even in the special procurement process, Legacy failed to sway the technical evaluators.
Rather, it was Denmark-based Carlson Rezidor, which beat Legacy in the February 2013 restricted tender and which Peermont refused to participate in, that carried the day.
The UHL board had warned the Ministry of Tourism against the lease deal with Legacy, saying the arrangement makes supervision difficult and would generate less revenue for government.
Despite these warnings, the ministry wrote Legacy chairperson Bart Dorrestein on May 13 2013, inviting the hotelier for negotiations.
Sources from the Ministry of Tourism and Umodzi confided in Nation on Sunday in December that the major sticking points are on revenue sharing and the lease arrangement that is seen to favour Legacy.
Earlier, on April 10 2013, Mbilizi wrote Secretary for Tourism, Wildlife and Culture Fletcher Zenengeya, reminding him of the board’s position on the facilities.
Apparently, at its extraordinary meeting held on March 11 2013, the board had considered a comparative analysis of two options—lease and management approach—and determined that government should not opt for a hotel lease.
The board explained that the hotel lease option offers the owner less revenue than the management agreement, adding that in a lease arrangement, the owner has little influence over what happens to the business and the property during the long lease period.
In response, Zenengeya advised the board to support the lease agreement with Legacy because the “authorities” are getting impatient, according to e-mail exchanges we saw at the time.