Hotels' auction tough. Review of lending policy overdue

By The Editorial Board 30 September 2022, 6:00AM

The front page story in yesterday’s edition of the Samoa Observer, on the Development Bank of Samoa (D.B.S.) exercising its right to foreclosure over three privately-owned hotels in Samoa, was a long time coming.

The alarm bells signalling foreclosure had been ringing long before the measles epidemic struck Samoa in October 2019 and prior to the arrival of the COVID-19 global pandemic in early January 2020, which led to the country declaring a state of emergency and closing its international borders in March 2020 to literally cripple Samoa’s top foreign exchange earner in tourism. 

In fact if you were to browse through the past editions of the Samoa Observer going back some 4–6 years, the issue of the D.B.S. and its list of high profile debtor-hoteliers were making headlines as debate raged back then on the rationale of them being given extensions to repay their loans.

Ask the current Minister of Works Transport and Infrastructure, Olo Fiti Vaai, who as the Member of Parliament for Salega in June 2018 queried the status of a $50 million loan approved by the D.B.S. for the Aggie Grey’s Hotel and Bungalows. 

At the heart of Olo’s concerns at that time was the D.B.S. allegedly pursuing some of his constituents for much lesser loan amounts, which he described as being unfair when those with much bigger loans were let off the hook. 

Close to a year later in May 2019, the Cabinet of the former Administration intervened and stopped the D.B.S. from going to Court to enforce foreclosures targeting eight local tourism and hospitality businesses, but refused to approve $20 million to fund the writing-off of the hotels’ loans.

However, in early 2020 the then Chairman of the D.B.S. and Ministry of Finance C.E.O. Leasiosiofaasisina Oscar Malielegaoi warned the debt-ridden hoteliers that the State-owned bank will not hesitate to enforce foreclosure, as the 18-months deferral of the loan repayments deadline was sufficient time for them to restructure their finances or even look for interested buyers.

“We inform them [the Cabinet] of the hotels that are making payments regularly which are a sign they are genuine with their request for assistance,” the Ministry’s C.E.O. said at that time.

“But for hotels that have not made any payments, indicates they are not genuine with their requests.” 

The above statement by the then D.B.S. Chairman makes you wonder if the bank’s management ever got to review and separate the genuine debtors (who were making repayments) from those who continued to delay repayments?

Over two years after Leasiosiofaasisina gave notice to the hotelier-debtors, the axe fell last week on locally-owned Orator Hotel at Tanumapua, Le Manumea Hotel at Vailima and Vaea Hotel Samoa at Togafuafua, when they were put up for auction as the D.B.S. kick started the process to recoup their loans.

Orator Hotel owner, Leiataualesa Jerry Brunt, was the only hotelier out of the three who responded to questions from this newspaper. 

“To answer your first question therefore (whether Orator Hotel was sold during auction) sorry we do not know as we never were informed or knew it was being auctioned in the first place.”

While we sympathise with Leiataualesa’s position as the owner of one of three hotels that went under the hammer last week, surely as a seasoned businessman he would have seen this coming, due to the delays by his hotel to process loan repayments that have been outstanding for some time.

And we understand too the dilemma that the D.B.S. is facing, having paid out multimillion million tala loans to local businesses including hoteliers, with the long delays in repayments (prior to the COVID-19 pandemic) leading to accusations that there was favouritism in its loan application process. The D.B.S. as the lending institution had no choice but to start the recovery process by putting the hotels up for auction.

So there are lessons there for everyone, especially local businesses that currently owe the D.B.S. millions of tala. Based on our own reporting on this particular issue over the years, we believe the public auction of the three hotels last week leaves five other hoteliers that also received loans from the State-owned bank over 5 years ago.

Have the five tourism and hospitality businesses paid back their loans or will their properties and assets also be put up for public auction?

Two months since the opening of Samoa’s international borders on 1 August 2022, we wonder whether these hoteliers whose properties were auctioned last week, would have had ample time to begin to regenerate income to resume their loan repayments.

And whether the current Fa’atuatua i le Atua Samoa ua Tasi (FAST) Government should have intervened and asked the D.B.S. to defer their recovery action, due to the opening of Samoa’s borders and the confirmation of Samoa’s hosting of the Commonwealth Heads of Government Meeting (CHOGM) in 2024.

But then we are reminded that the law is clear and the lending policy of the D.B.S. should be purely commercial-driven and not be seen to only serve one particular sector of Samoa’s business community.

It is clear that a review of the State-owned bank’s lending policy is long overdue in order to avoid non-performing portfolios that are unlikely to reap rewards that would over the long-term lead to profitability.

By The Editorial Board 30 September 2022, 6:00AM
Samoa Observer

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