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Minister asks Govt. for $20m to write off tourism properties debt

The Minister of Tourism, Sala Fata Pinati, has intervened in an effort to assist tourism properties who are “financially distressed” and are in heavy debt.

He has asked Prime Minister Tuilaepa Dr. Sa’ilele Malielegaoi to consider the allocation of $20 million from the Government to “write off” principal amounts owed by “financially distressed properties to different financial institutions.” He has also urged the Government to advise the financial institutions to hold off on "all legal actions" against the properties while a solution is being worked out.  

The Minister does not identify the properties and the financial institutions he is referring to.

But the request is made in a Samoa Tourism Authority (S.T.A.) internal memo from Minister Sala and the Samoa Hotels Association (S.H.A.) to Prime Minister Tuilaepa. Dated 7 May 2019, the memo is titled “Rehabilitation of Financially Stressed Tourism Properties."

Under the “recommendations” for the Sustainability of the Tourism Sector, the Minister said the economic and fiscal importance of the tourism sector means the Government must intervene to ensure the industry’s “ongoing commercial viability”

“Allocation by Government of $20 million (4% of total tourism earnings in 2018) to be earmarked to assist with possible write off of principal amounts of debts owed by financially distressed properties to different financial institutions,” the recommendation reads.

“This will allow the operators the opportunity to trade back into profitability especially with the promising outlook for the sector over the next five years.”

It was not possible to get a comment from the Minister to explain the memo at press time. Attempts are being made to get a comment from Prime Minister Tuilaepa.

But the memo comes amidst concerns that a number of tourism properties in Samoa are struggling with their loans – some of them with the Development Bank of Samoa.

Just this week, the Development Bank announced the auction of two local hotels who have debts with them in a public notice. The public notice said the Registrar of the Supreme Court of Samoa would offer both hotels for sale by public auction at Court Room No. 4 on 23rd May 2019.

Earlier this year, the Development Bank cited “large non-performing loan (N.P.L.) accounts in tourism” as a  “significant challenge” in maintaining “a sustainable level of liquidity.”

According to the annual report for the Financial Year 2017-2018, the accounts left a negative impact on the operation of the Bank, which also recorded a loss of $2.1 million for the year in question.

A “non-performing loan” is one where the “borrower is not making interest payments or repaying any principal.”

“The most significant challenge that has affected the D.B.S. operation is maintaining a sustainable level of liquidity,” Chief Executive Officer Fauena Susana Laulu said in the report.

“Whilst the tourism industry has seen positive growth, a high level of non-performing loans remains, which accounts for 48 percent of portfolio. The repayments expected are inadequate to cover repayments schedule and to reduce loan balance.”

The Chief Executive Officer explained that in some cases, “interests has been suspended to manage accumulation in loan balance when none or minimal money is being paid.”

“These projects are under concessional facilities and remain operational to date. Despite the inadequate collection, the D.B.S. remains obligated to pay the debts that funded these projects,” the C.E.O. said.

“The N.P.L. accounts hold 48 percent portfolio and accounts only for 10 percent of the total collection in 2018. Lost interest for the period was $1.1 million.

“In 2018 D.B.S. has paid $13.8 million to debt servicing compared to the $18.5 million of loan collections. The D.B.S. had to source a new debt to support its cash flow commitments.”

As a consequence, Fauena reported that new loans “were on hold whilst priority was accorded to debt servicing and operation.”

The following is the internal memo verbatim:

Internal Memo

DATE: 7th May, 2019

TO: Honourable Prime Minister

FROM: Hon. Minister of Tourism, STA & Samoa Hotel Association

SUBJECT: Rehabilitation of Financially Stressed Tourism Properties

__________________________________________________________________________________________

Background 

The performance of the tourism industry has been over the past few years highlighted by record growth in overall visitor’s arrivals and earnings driven by increased air capacity from our key markets but also due to record growth achieved within our emerging markets in Europe and Asia respectively. The period has also seen unprecedented growth in our tourism accommodation stock which grew by 84 percent over the past 10 years alone especially in room capacity for our Deluxe properties which have nearly doubled from 2014 to 2016 with the reopening of Sheraton in town in the establishment of Taumeasina Island Resort.

The high growth in overall room stock in proportion to overall visitor arrival growth along with the effects of the natural disasters that affected us in 2009 and 2012 has meant some of our properties have struggled to recover and achieve financially stability. While the government has provided support to assist post recovery and mitigate the disruptive nature of such disasters, the high interest rates faced by operators means that the process has taken longer than expected with some of the operators now facing the real possibility of foreclosure on developments that they worked long and hard for.

Tourism Sector Performance

  • Total tourism earnings in 2018 was $494 million accounting for 23.8 % of total G.D.P. growth of 16% was achieved over 2017 earnings with average growth of 9.2% achieved since 2014.
  • Direct employment in the industry is now 4,422 compared to 2,825 in 2010.
  • Total visitor arrivals in 2018 was 172,496. Growth of 9.5% was achieved over 2017 figures with average growth of 6.7 % achieved since 2014 exceeding 5 % growth average growth target set under our sector plan.
  • Our emerging markets continue to perform well with N.Z, Australia, American Samoa and USA contributing 85% of total visitors although Asia and Europe achieved solid growth of 42% and 15% respectively 2018.
  • Total seat capacity has increased by approx. 70,000 seats for 2015-2018 period mainly out of NZ and Australia with approx. 41000 additional travelers into Samoa for the period mainly due to the cheaper airfares now available through increased competition.
  • Overall Occupancy Average Rates increased to 41.2 % in 2018 from $38.6% in although it continues to be dominated by the Deluxe and Superior properties compared to the standard, budget and beach fales who continue to perform way under the national weighted average.
  • Visitors utilizing our accommodation providers have increased to 62777 in 2018 from 55644 recorded in 2017.  

Tourism Sector Outlook

  • The outlook for the industry over the next few years remains positive.
  • The Samoa Tourism Authority Growth programme funded by the N.Z. aid continued to go well with NZD $5 million earmarked to be spent over the next three years on improving products through sites and signage as well as marketing campaigns in our key markets.
  • Marketing Initiatives to focus on having an inclusive approach for all properties with an improved Samoa Direct booking system on the new website being developed.
  • Marketing initiatives to include funding for all properties to attend Roadshow Campaigns in our key markets.
  • More funding to be allocated for digital marketing campaigns for individual operators
  • Air Capacity to continue to grow not only within our key markets but exploring new routes within our emerging markets.

Recommendations for the Sustainability of the Tourism Sector

The economic and fiscal importance of the tourism as highlighted in the figures above reinforces the need to ensure its ongoing commercial viability and the following humble recommendations are made for Government consideration:

  • Allocation by Government of $20 million (4% of total tourism earnings in 2018) to be earmarked to assist with possible write off of principal amounts of debts owed by financially distressed properties to different financial institutions. This will allow the operators the opportunity to trade back into profitability especially with the promising outlook for the sector over the next five years.
  • Consideration of favorable interest rate for the Tourism Industry hopefully within the 0%-3% ranger over the next five years to stimulate further investment especially in the upgrade of existing properties and not additional properties which would further already struggling occupancy rates
  • Advise to financial institutions to hold off all legal actions currently in progress for Tourism operators while we continue to pursue what has been mentioned above.

________________________________________________________

Honourable Sala Fata Pinati


Minister of Tourism

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