Published on October 5th, 2009 | by admin0
Goodbye loss, hello profit
A change in the ownership of the land on which the government-owned Windhoek Country Club and Resort was built has enabled the hotel to make substantial gross profits, writes Tangeni Amupadhi.
Government may yet emerge from its much criticised ownership of a Windhoek hotel and casino with something better than just the loss of taxpayers’ money.
The Windhoek Country Club and Resort (WCCR), now owes the principal lender N$40 million though its debt to the taxpayers stands at nearly N$230 million.
The Country Club was built in 1995 by Stocks and Stocks Namibia with money from the Government Institutions Pension Fund (GIPF). Reports at the time said fund administrators were forced to hand over the money for the project due to political pressure. Stocks and Stocks, a South African firm, was partly owned Aaron Mushimba, brother-in-law of then President Sam Nujoma. The company was supposed to use the hosting of the Miss Universe beauty competition as the launch-pad for the opening of the four-star hotel, the first in the country, although it wasn’t finished in time and the beauty queens were left to inhabit a complex that looked more like a building site than a luxurious palace.
GIPF gave the money with government agreeing a full guarantee for the loan. Within four years, it became apparent that the WCCR was not a viable business. The Stocks and Stocks conglomerate was in financial dire straits and eventually crumbled, leaving the Namibian government to pick up the bill. The government took over the ownership of the hotel. But by 2006 the money owed to GIPF still stood at N$100 million though it is unclear how much of the capital amount was settled.
Stocks and Stocks retained management of the WCCR (which passed on to Legacy Hotels and Resorts – a company created out of the collapsed Stocks and Stocks). The management agreement meant the owners of the hotel – the government of Namibia – would pay management fees to Legacy. The agreement was based on the 99 years lease for the land on which the Country Club was built.
The WCCR was built on land owned by the Windhoek golf club. This meant that as long as the hotel leased the land the management agreement and the fees would remain with Legacy.
When a new board of directors was appointed in 2003, an audit of the agreement found that Legacy was paid the management fee purely based on revenue, disregarding performance or profitability. The agreement was bleeding the hotel of funds.
The directors then talked to the golf club and bought the land, says chairman of the board Sven Thieme. This resulted in the cancelling of the agreement with Legacy. WCCR rehired Legacy last year on much tighter terms with performance demands and profitability tied to the management fee.
Thieme hardly hides his delight about these developments, which have turned the fortunes of WCCR around from a paltry “operating profit” of N$600,000 in April 2003 to N$17 million in 2008 and N$22 million at the end of the 2009 financial year (April).
“The Country Club should never be making any losses. It is a viable business. At the end of the day the wasting of a government asset is a cost to the poor,” said Thieme.
Owing the taxpayer
Thieme is adamant that at the time his board took charge in 2003, they correctly argued that the WCCR should not be privatised. Had the government tried to get rid of the loss-making and debt-ridden hotel then, it would have received little money for it, perhaps only at liquidation rates.
Thieme did not say how strong the company’s balance sheet is now or what its losses have been over the past few years. But he said the WCCR still owes the government (its owner) N$227 million. GIPF financial manager, Neville Field confirmed that the WCCR owes N$40 million. He was confident the hotel’s fortunes have turned for the good and that it can now pay off its debt comfortably. “Interest is paid every month,” said Field. “We are now waiting for the restructuring of the balance sheet with the government and then we will assume they are in a position to pay what they owe us. We are certain we will generate a return on that loan. It won’t be a write-off.”
Thieme said the restructuring meant the N$227 million debt to the government will be converted to “redeemable preference shares”. With that the debt will technically count as a capital injection which will reduce the Country Club’s loans by that whopping figure. Without the restructured debt WCCR would still show massive debt with liabilities exceeding assets and penalties on unpaid interest. Thieme said the financial statements will be restated and audited before they are made public.
With the financial position of the Windhoek Country Club and Resort beginning to look rosy its board of directors feel the government is now in a much better position to privatise the hotel if it wants to.
Somewhat worrying is talk on the grapevine that the hotel could be transferred to the Ministry of Environment and Tourism and thereafter to the Namibia Wildlife Resorts (NWR). NWR has had massive debts for about 10 years and recently asked for a further bailout from tax funds. Thieme said there was no talk of a hand-over to NWR at this stage. How long this situation will remain is another matter.