Tourism sector finds borrowing tough

(CNS): Only hotels in the Caribbean with well-known household names are likely to have received cash in recent times, according to a study carried out by KPMG. Globally branded projects, which are well capitalised and carry low levels of debt to equity are the best positioned to succeed when it comes to receiving financing while financial institutions continue to remain tight on lending, the report says. KPMG’s 2011 Caribbean Region Financing Survey focussing on lending in the hospitality and tourism sector in the Caribbean was based on findings carried out by KPMG professionals from across the region from February to April 2011.

It targeted senior corporate bankers and senior executives of niche financiers, representing a total of US$2.8 billion in exposure to the tourism sector.  Countries represented were the Bahamas, Dominican Republic, Barbados, Jamaica, Bermuda, Trinidad & Tobago, British Virgin Islands, Turks & Caicos Islands and the Cayman Islands.

As the downturn in the global economy continues to impact lenders, new and increased credit facilities are being made available to established hotel operations and operators with strong track records, according to the report.

“Borrowers are, in most cases, well capitalised borrowers and, ideally, part of a recognised chain of branded properties. A strong operator and hotel brand is seen as a prerequisite in order to survive and, in some instances, thrive within the increasingly price competitive market, where hotel properties are faced with operating cost pressures,” the report says.

In comparison, very little lender financing activity was to “greenfield” or boutique properties.

The report goes on to say that renegotiation and restructuring activities have increased where borrowers have got into difficulties and lenders have become more active in monitoring loan portfolios.

Lenders are also requiring borrowers to take additional risk in hotel projects by lowering loan to value ratios. The report says the impact has been that lenders are able to reduce exposure as thinly capitalised projects are not likely to be financed. At the same time a decrease in property values is likely to further impact existing loan exposures.

To move stalled projects forward, survey participants said there was a need for an assessment of the market, and an injection of additional equity to recapitalise the project.
“One of the themes in these responses was that where the project had stalled, there was erosion in the credibility of the sponsors, and their initial assessment of the project’s feasibility,” the report noted.

Lenders, it said, continue to exhibit a cautious approach to lending and see a gradual improvement in the Caribbean tourism sector. That said, this year they are increasingly worried about international world developments.

Global and regional macroeconomic indicators, including the price of oil, world food and commodity prices, and the socio-political developments in northern Africa and the Middle East were some of the issues currently worrying bankers and developers. Others issues of concern to the region’s tourism industry included the implementation of the UK travel tax and the increased awareness of regional crime in the international press.

Regional stopover visitor arrivals have fallen in each of the last three calendar years and are now lower than they were in 2006. With regard to stopover visitors, some of the winners were Cuba, Dominican Republic and Jamaica, with Puerto Rico and Bahamas being the biggest losers, the report stated.

Survey participants ranked global economic issues as being the most significant challenge and the strongest indicators of a turnaround in the tourism sector (73 per cent), while issues such as operating costs, social issues, the UK travel tax, and the quality of hotel product were each thought to pose a significant challenge to the sector, by approximately two percent of the survey participants.

Only 36 percent of the survey participants had positive views for the prospects of the Caribbean tourism industry over the next 12 months.

See full report here