Business Times

How the Hilton came to riot-affected Colombo while other potential investors ran away

Cornel’s reflections

The Hilton Hotel Colombo property was recently re-possessed by the government following a sequence of events of over nearly 30 years (as long as the conflict) in which the property and hotel company has been plagued by debts, political changes resulting in policy issues and conflicts between investors. Cornel Perera, Chairman of Cornel & Co who brought the Hilton to Colombo and also its investors and is now in the middle of the debt-cum-legal battle, has sent us his ‘reflections’ on the issues at stake:
“In July 1977 the then governing United National Party opened the economy and wanted international hotels to come to Sri Lanka. Land at Galle Face was offered to John Keells for the Sheraton and whoever brought in Hilton was offered the Echelon Square.

Cornel Perera

I was successful in making it interesting for the Hilton to come over and approximately 7 1/2 acres was offered for this purpose. All state lands in Colombo for international hotels were at Rs.150,000 per perch at that time.

After the ethnic riots of 1983 Sheraton/Swiss Hotel/others too pulled out but I was able to persuade Hilton not to do so. Our Japanese partners too were understandably looking for methods, means and excuses to exit/escape from the project.

We had the hard task of convincing, cajoling, coaxing and pressurizing the Japanese to stay on and made many financial contributions to secure this outcome. Among the many expenses involved in promoting, lobbying and convincing the parties involved i.e. itsui/Taisei and Hilton International – we were faced with the task of clearing the site at his expense as the Government at that time was not in a position to pay for the site clearance. This involved - among many other things - the removal and relocation of the police communications tower and the paying off of the many squatters on the site etc.

Colombo Apothecaries - owned by my company - was also a very costly sacrifice as it was understandably acquired by the State to move the whole Fort police station to facilitate the UDA to conform to the lease agreement.

The truth is that the UDA failed badly to deliver as per lease agreement thus delaying the construction. Some portion of land was not delivered even around ‘86/’87 although part of the 20% down payment was paid to the UDA as early as August ’83 and completely paid off by March ’84.

I had to understand and accepted the UDA’s ‘no money’ predicament as that was the country situation then. The final drawings alone completed in ‘82/’83 costing around $3 million was neither paid for by Mitsui/Taisei, nor was any advance paid to the architects.

It was my Japanese mentor Dr. M. Hattori’s generosity in guaranteeing the payment that moved the project forward. Had the Hilton project failed we would not only have lost all his cost/expenses amounting to millions by this time but I would have had to make good this $3 million as well.
Our expenses and financial commitments alone could have entitled me to a substantial portion of equity while additionally for a project of this nature and class promotional shares of at least 12% to 14% of project cost of around Rs 1.8 billion is more than justified.

Our financial contributions/expenses from ’79 to ’84 were well in excess of Rs. 130 million - the total cost of the UDA lease which had to be completely paid off by only 2020. In other words- simply put - I had the right to receive/demand controlling shares of HDL (the owning company) and certainly was not obliged under accepted commercial/business practice to take over the lease at all.

But sadly and unfairly as another escape/exit methodology, the Japanese were not willing to let HDL take the burden of the land lease onto the owning company as would be the normal practice.
To prevent the collapse of the project I had to shoulder the burden of taking over the UDA land lease and simultaneously transfer the realized shares directly to the Treasury - gratis – not receiving a red cent - never expecting to see dividends for at least 20 years. This was the sacrifice and risk taken by Cornel and Cornel alone.

The Japanese also avoided contributing proportionately 17% of their shares with my 34% , which would have been fair and equitable as my shares were transferred to the Treasury for and on behalf of all HDL shareholders including the Japanese. Other substantial losses incurred by us can be ascertained by and from the note submitted in September ’84 by Cornel’s ex-employee/director Nihal Sri Ameresekere.

The alleged non-payment of the lease monies by me is a matter under dispute with legal implications which will be addressed by our lawyers. Suffice to say that I was frustrated/precluded.
The lease agreement clearly states, “The lessor may not cancel or determine this lease in any event until the repayment of the loan stipulated in the loan agreement to be concluded by and between HDL as a borrower and Mitsui Co and Taisei Corporation as a lender shall have been completed.” Provision is provided for arbitration.

According to the minutes of the HDL Board meeting of January 1984, the chairman Mr. C. Perera informed the board that the proposed Hilton project that was developed by Cornel had received approval. “51 % of the fully paid-up Share Capital of the company to be acquired by Cornel & Co. Ltd. is to be transferred to the Government of Sri Lanka during the period of validity of the Guarantee period and is to be transferred to Cornel & Co. Ltd. on the cancellation of the Guarantee.”

According to the minutes of an HDL Board meeting in the same month that year, “the chairman intimated to the board that the Hilton project to be established in the Echelon Square that had to be promoted by Cornel and Co. since 1979 had now reached a stage of finality. It was resolved that HDL take over the project that had hitherto been developed and finalized by Cornel and Co. for execution and implementation. It was noted that Cornel and Co. would not be claiming substantial preliminary and promotional costs incurred for the development of the project which is now in it’s finale stages and ready for execution and implementation. Further no promotional fees are payable to Cornel nor any shares to be allotted for the promotion of the project.”

Hilton Colombo was architectured by Shibata Yozo who was lifetime consultant/friend of Robert Kwok, the internationally respected tycoon of the Shangri-La Group. It was built on the non-aging concept – the one and only one in the whole of South Asia. Under all these circumstances for delivering the Hilton – the Crown Jewel/trophy to the burnt city of Colombo and the country what kind of price tag can be put?”

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How the Hilton came to riot-affected Colombo while other potential investors ran away


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