New Four Seasons plan

READERS?WILL?RECALL that the development of the Four Seasons Resort and Private Residences – a 110-room hotel and approximately 36 luxury villas on Paradise Beach – ran into difficulty in February 2009, in part a victim of the global financial crisis.
In July 2010, the Government agreed to guarantee US$60 million in long-term loans to the project to protect it from creditors forcing it into liquidation and, no doubt, ten years of legal wrangling, and give the project time to get new financing.
A US$60 million credit facility was disbursed by ANSA Merchant Bank in November 2010.
Under a plan agreed by owners of 12 sold villas, in addition to stabilizing the project, the loan provided for a small amount of financing to kick-start the construction of villas, and together this would trigger the resumption of US$100 million of owners’ stage payments.
The plan saw the hotel being financed by surpluses from these stage payments, plus an additional US$60 million of debt and equity financing arranged in January 2011. The plan was complex, but this was to minimize the exposure of Government while kick-starting a project that Savills [property management] had valued at US$550 million.
In February 2011, we started some modest infrastructure work as planned. The villas are more than self-financing so as soon as any owners wanted to start, we were ready to go.
Then in April some villa owners introduced totally new demands which, if we gave in to all, would mean that there were no longer sufficient funds to build the hotel – having different rules for some is not the Barbadian way.
The nineteenth-century Prussian general, Helmuth von Moltke the Elder, once said, “No plan survives contact with the enemy” and while the villa owners are partners, not foes, we needed to adapt.
Under the new plan adopted in May, we would raise sufficient debt and equity to build the hotel without any proceeds from existing owners so that the timing of the hotel completion was not dependent on what they decided to do. This was the old-fashioned way of financing developments. But it meant raising US$130 million of new money, not US$60 million.
Some US$130 million is more than we will need. The hotel will cost US$110 million, but today projects have to be over-capitalised to make villa owners confident that unforeseen eventualities can be absorbed. It is testament to the fundamentals of this project that this has not unnerved financiers.
One month on, our bankers have arranged a package of $90 million of new and long-term debt and I am now focused on raising US$40 million of new equity through the issue of preference shares with a ten per cent coupon.
None of this would have been possible without the breathing room the [Barbados Government] guarantee afforded us.
We have engaged London and New York investment banks who promise to deliver in a couple months.
I would like as much of the new equity as possible to come from small local investors to help in the democratization of local capital.
 
Professor Avinash Persaud is chairman of the board of Paradise Beach Limited.