Vol. XXII, No. 77 [ BusinessWorld Online ]
Tuesday, November 11, 2008 | MANILA, PHILIPPINES
BY MARITES S. VILLAMOR, Cebu Bureau Chief
CEBU CITY — Lower courts will next month auction off the two Waterfront hotels in Cebu owned by businessman William T. Gatchalian at the instance of creditor Philippine National Bank (PNB), which has started foreclosure cases against the hotel chain over unpaid debts worth P740 million.
Gatchalian aides said the PNB action was "uncalled for," but admitted that Waterfront had to stop loan repayments in February as the money would have to come from a new contract with a major tenant, Philippine Amusement and Gaming Corp. (Pagcor), the state gambling monopoly.
In a statement, Waterfront Philippines, Inc. said it now had the funds to service the PNB loan after securing a new contract with Pagcor.
The Lucio Tan-led bank on November 4 filed a petition for extrajudicial foreclosure sale against Waterfront and subsidiaries Waterfront Cebu City Casino Hotel, Inc. and Waterfront Mactan Casino Hotel, Inc., before the Cebu and Lapu-Lapu regional trial courts.
Waterfront to pay
Waterfront yesterday claimed that it was "ready, willing and able to meet its obligation with the bank," and that there were even negotiations for the prepayment of the loan.
In any case, the firm said "substantial" payments had been made for the $30-million loan obtained in 1997.
It also called attention to the fact that the debt’s peso equivalent had more than doubled because of the currency’s devaluation following the Asian financial crisis.
PNB officials were not immediately available for comment.
A top Waterfront official, who asked not to be named, said the bank may have considered the hotel chain in technical delinquency. The official, meanwhile, described PNB’s move as "premature," "unacceptable", and "unfair."
Waterfront said it had paid the bank a total of $6 million and P1.2 billion, covering both principal and interest, as of end-2007.
The PNB loan has been converted to peso and restructured three times.
The first restructuring agreement, reached in October 1999, provided that the loan be secured not only by a mortgage on the buildings and improvements of the Cebu and Mactan hotels but also by the assignment of rental receivables from Pagcor, which operates casinos in both establishments.
Under the third restructuring agreement effective March 2004, Waterfront was to pay P6 million monthly and the loan was to mature on Dec. 31, 2008. PNB’s petition stated that as of October 23, the loan amounted to P744.946 million not including penalties, expenses, charges and attorney’s fees.
Waterfront said it was willing to reinstate the loan conditions prior to the technical delinquency.
The combined value of the two hotels, P5-6 billion, should be more than sufficient to dispel any doubts on the company’s ability to cover the entirety of the obligations, it added.
"[Waterfront Philippines] will exert all legal efforts to prevent this clearly uncalled for action of PNB in order to preserve its rights and protect the rights of the thousands of employees whose livelihood depends on the smooth operations of the hotels and will surely be unduly affected by the said foreclosure proceedings," the company said.
Auction proceedings
Branch 54 of the Lapu-Lapu Regional Trial Court (RTC) issued a notice of auction against the 167-room Waterfront Airport Hotel & Casino Mactan shortly after the PNB petition was electronically raffled off last November 4, with the auction set for December 5.
The notice will be published in a newspaper for three consecutive weeks beginning November 14.
A similar notice is expected to be issued today against the 562-room Waterfront Cebu City Hotel & Casino, Waterfront’s flagship property and currently the biggest hotel in Cebu City.
The PNB petition was assigned to Sheriff Elcid R. Caballes during the regular schedule for the raffling of cases yesterday afternoon.
The auction date would be set within 20 days from the issuance of the notice, or within the first week of December.
"Waterfront can still file for annulment and ask the court to issue a TRO (temporary restraining order) against the foreclosure. But they have to do that within 20 days," a source at the Cebu RTC said.
Waterfront officials said they were "optimistic about the situation," citing the continued growth of the tourism industry.
"As such, the company’s cash flows have been steadily healthy," they added.
Company performance
The average room occupancy in Waterfront hotels in 2007 was 72%, with consolidated room revenues growing 8.9% to P710.46 million, company data showed.
The Waterfront Cebu City Hotel accounted for 39% or P732.14 million of total revenues while the Mactan hotel accounted for 13% or P253.21 million. Other Waterfront properties are the Manila Pavilion Hotel, Waterfront Insular Hotel Davao, and the G in Manila.
The Cebu City hotel, which also has convention facilities, continues to host international and local conventions despite the global economic crunch. The hotel hosts an average of seven major conventions a year.
These are booked usually a year or two in advance. Although bookings for international conventions went down this year, officials are banking on local events to keep them occupied.
In an early indication of financial woes for the Gatchalian firm, authorities at the Clark free port cancelled last month a deal with Waterfront to develop the Mimosa Leisure Estate.
The deal also depended on a lease contract with Pagcor. — with a report from K.J.R. Liu