Business Times

Hilton hotel control in a limbo

HDL has no assets; to release 21 years of unpublished accounts this week

The Sri Lankan government this week formally re-possessed the land on which the Hilton hotel stands relegating the hotel’s owning company, Hotel Developers Lanka Ltd (HDL) to an organization without an asset, a huge debt totalling more than Rs 10 billion and continuing losses.

Hilton GM moves against termination
In a totally unrelated development, Hilton Colombo General Manager Jerome Auvity sought and obtained an enjoining order this week from the Colombo District Court against his dismissal by US-based Hilton International, pending hearing of his plea.

Mr Auvity, with the group since 1990 and transferred to Colombo in end 2008, said that on March 4, William Costley, Hilton Vice President - South East Asia, met the plaintiff (Mr Auvity) and asked him to resign or that his services would be terminated. No reasons were given for the request, neither was a charge a sheet issued.

But he said he believed the action was as a result of jealously by some (foreign) officers of the hotel particularly Maria Lamarche, Director of Operations at the Hilton in around June 2010. There were several complaints against this officer by staff and guests. President’s Counsel Romesh de Silva appeared in support of the application.

On Thursday, the HDL board met and cleared 21 years of annual accounts since 1990 and planned to release it to the Colombo Stock Exchange and shareholders this week. On the same day, the hotel – to reassure clients and the business community – said operations continue as normal and that Hilton representatives would soon meet the new owners of the land and building (government).

Though Economic Minister Basil Rajapaksa announced in Parliament on Wednesday that the government had taken over the hotel, the actual position is that the government had re-possessed the land – through a formal decree -- because the leasee businessman Cornel Perera’s company had failed to pay the lease rental for many years and the Hilton still remains – at least on paper – in the ownership of HDL, the Business Times (BT) found.

In fact, the land reverted to the Urban Development Authority (UDA) in 1999 for the same reason and technically it was from that date onwards that HDL or Cornel & Co lost control of the property and, with that, the hotel building. Without an asset, HDL was near bankruptcy, the BT found from influential sources who have been following the ‘progress’ of the company since its formation in 1984. On Wednesday the Divisional Secretary’s Office in Colombo formally took control of the property after it was returned (through a formal transfer) to the government on January 20, 2011 by the Urban Development Authority (UDA)

The Hilton property was a 4-way deal when the project began in 1984: The government giving it to the UDA; the UDA leasing it to Cornel Perera, the latter sub-letting it for almost double the lease rental it was paying to the UDA to HDL and receiving shares in lieu of lease payment and using the share certificate for a government guarantee on a Japanese loan.

The latest development in a more than 25 year-long running dispute between shareholders and the government amidst mounting debts and a battery of court cases comes after the company was cleared legally to release its annual accounts, unpublished since 1990. On Wednesday, the company’s Audit Committee met followed by the board meeting on Thursday.

The BT learns that HDL has paid all its loan dues to the Japanese investors/shareholders as of last week but owes the government Rs 10 billion plus another Rs 5 billion which is the value of the property. Tourism industry analysts told the BT that the best course of action the government could take is to acquire the troubled company which should be voluntarily wound-up.

“The present board of directors led by its chairman Tiru Nadesan has done a commendable job to clear the accounts and also see to a possible winding up when it doesn’t have an asset and which was the case for 12 years (since 1999),” one analyst said.

Nihal Sri Ameresekere, a chartered accountant and a former HDL chairman, in a letter to the Securities & Exchange Commission (SEC) last week also said the company is ‘hopelessly bankrupt with continuing ‘defaulted debts to the Government, updated to 31.12.2010 to be around Rs.11.2 billion as per the loans advanced to the company by the Government.

He also said the land had reverted back to the Government, as far back as July 1999 and that the company is virtually in illegal occupation of state land. The company’s accountants SJMS, in a ruling on Monday said that the draft annual accounts ending March 31, 2010 shows the stated capital of the company at Rs 452 million whereas the accumulated losses and reserves total over Rs 15 billion, which is a serious loss of capital.

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