Business Times

Long simmering dispute over Hilton ends

The government announcement this week that it has control of the Hilton hotel by virtue of re-possessing the property and thereby the building on it, follows a long dispute between local and foreign shareholders since the inception in 1984.

It all began in the early 1980s when businessman Cornel Perera approached the government with the idea of bringing over the Hilton hotel with Japanese firms putting in the money. On February 7, 1984, the Urban Development Authority (UDA) signed an agreement with Mr Perera to lease out a seven acre plot of land at Echelon Square in Fort for Rs 136 million where the Hilton is now located. The deal was criticized by the opposition parties at the time as not being transparent and conducted in secrecy.

The Hilton Hotel

A week later on February 15, Mr Perera’s Cornel & Co in turn sub-leased the premises to Hotel Developers Lanka Ltd (HDL) for almost double that amount – Rs 250 million. Both leases were for 99 years. The latter deal was settled in issuing 25 million shares of the company to Cornel in lieu of payment. Subsequently, he purchased another 300,000 shares in the company and raised his stake to 51%.

HDL had two foreign collaborators – Mitsui & Co and Taisei Corporation of Japan which in addition to the equity investment also had agreements to construct and furnish the hotel. It provided a syndicated loan of YEN 12.3 billion to finance the project. The government agreed to give a guarantee as to the loan repayment obligations. Cornel (Co.) then transferred its 51% stake to the government under a share transfer agreement.

However Cornel & Co paid only Rs 27 million to the UDA which was only 20 % of the value of the lease rental payable to UDA i.e 20% of Rs 136 million. The balance was to be paid in 33 interest free installments but this was never ever paid (since 1987). As a result, the land reverted back to the State through Deed 673 and 674 when in August 1999, Cornel surrendered the land back to the state and the lease agreement was repudiated.Although this was not formally announced, it meant HDL and Cornel didn’t have any ownership or right to the land. However no other action followed despite the ownership now being in dispute – with the hotel company continuing to function without any hindrance.

Another issue that has dogged HDL, according to industry analysts, is that the management fees agreed to with Hilton is too high and above market rates. The 1984 management agreement with the Hilton entitles it to 31 % of the Gross Operating Profit (totaling some Rs 188 million in 2010) while the Hilton’s fee to manage the JAIC (Hilton) is only 12 % of GOP.

The five main shareholders of the company are Government of Sri Lanka 65 %, Mitsui 13 %, Taisei 13 %, Takashimaya Co 1.2 % with the rest held by Cornel and the public. The company is listed in the Colombo Stock Exchange but has failed to submit accounts since 1990.

Industry analysts said the hotel desperately needs refurbishment and an upgrade to keep in line with other top five star properties in Colombo with the Taj planning a $40 million upgrade. However the hotel company cannot proceed due to pending legal cases and lack of funds.

There are seven cases involving the hotel. The first one was filed by Cornel against Mitsui and Taisei in the District Court; the second in the Supreme Court between the same parties; the third in the High Court involving the same parties; the fourth by Nihal Sri Ameresekere to wind-up HDL, the fifth by Mr Ameresekere against Minister G.L. Peiris; the sixth by HDL against Mr Ameresekere and the final one by HDL against the Municipality over revenue issues. All cases are pending and not finalized.

Top to the page  |  E-mail  |  views[1]
SocialTwist Tell-a-Friend
Other Business Times Articles
Hilton hotel control in a limbo
SEC to rent three BOI floors; life back to normal at BOI
Massive Rs 32 bln loss due to traffic congestion:Transport expert
Shareholders unanimously approve NLF private placement
Ten more hospitals from Nawaloka
Unlikely events for tourists
Sampath keen to sell Union Bank stake
Dialog signs BOI agreement for local BPO
Net inflow of foreign investment was $459 mln in 2010
Martin Roll seminars: Panel of eminent Lankan CEOs discuss brands, strategy
Commemorative coin
Comment - Governance in the markets
Feature - What makes you to pay more for your food
Right of Reply - ‘BOI applications not processed’
Construction and manufacturing to drive 2011 stock profits
Lankan development bonds draw offers worth $204 mln
Growth in self-expressive products is surging in Sri Lanka
Achiever awards by CNCI held for past 10 years
Fitch upholds ETI's 'BB-(lka)' / stable
UK's Export Credit Guarantee raises exposure limit to Sri Lanka
HSBC Holdings' 2010 profit before tax up 169%
ICAEW envoy to visit Sri Lanka to strengthen ties with ICASL
Onerous task of serving more than 11,000 meals a day
Financial sector must keep up credit, improve risk and be well capitalised : CB Governor
Reducing size of Govt. won’t help budget deficits and debt : top intl economist
TFC moves towards stability devoid of MBSL
WSO2 technology helps top Ukraine bank
Sri Lanka to present National Green Awards for industrialists
Letter - Education issues
Women’s Chamber of Commerce and Industries formed in Trincomalee
Nawaloka Petroleum targets 10% market share for ‘Total’ lube oil
Free Lanka Capital Holdings divests 45% in private placement, IPO
Letter - Highway robbery by a former Ceylinco firm
Kalpitiya: Applicant raises concerns on cancelled tender bids
CISI launches Sri Lanka office
Parakrama to address Terminal Operators conference in China
Credit Suisse checks out Sri Lanka’s investment options
Long simmering dispute over Hilton ends


Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 1996 - 2011 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved | Site best viewed in IE ver 8.0 @ 1024 x 768 resolution