ASIAN INVESTOR, JULY 2007
Bintan is a tropical Indonesian island 40 kilometres from Singapore. Unable to repay its debts, the Bintan Lagoon resort was put into receivership by its lenders. Moe Ibrahim’s Asian Debt Fund (‘ADF’) purchased the resort from the receivers.
The resort is comprised of 416 rooms, 57 villas, two 18-hole golf courses, the largest adventure training centre in Southeast Asia and 12 food and beverage outlets. It is sprawled over 750 acres of land, with nearly one kilometre of beach frontage, and employs 1,400 people. In addition, the resort houses, feeds and transports the employees.
In addition to a 15-member investment team, ADF has a 12-person sales and marketing team based in Singapore, which focuses on ADF’s existing and potential property investments. In Indonesia, ADF looks to buy cash flow positive assets that have defaulted on outstanding debt obligations. The team analyses hotels, resorts, commercial buildings, malls, serviced apartments, oil and gas concessions, palm oil plantations, cement and coal concessions.
ADF doesn’t want to disclose the dollar price that it paid for the resort, but based its initial valuation on a multiple of depressed cash flow and a 75% haircut to replacement value.
Today, multiples for such properties have increased dramatically. The resort’s cash flow has nearly tripled and in the past 18 months, occupancy has increased from 38% to 62%, with revenue increasing from S$55/room to S$79/room. At the same time gross profit margins have improved from 21% to nearly 30%.
“ADF expects to generate a 4-5x return on the investment within three or four years,” says Moe Ibrahim. “The resort generates record revenues month-over-month,
and this trend is expected to continue for the next 18-36 months. With 250 acres of undeveloped land, the potential to expand is enormous. ADF owns 100% of the debt and equity of the company. Owning 100% of an asset of this size is exceptionally unique and enables ADF to implement change on a real-time basis.”
ADF hired award-winning architectural and interior design firms. “There are aesthetics, and then there are revenue-generating aesthetics,” says Ibrahim. “The current refurbishment program is being funded entirely from existing cash flow. It is enhancing revenues and propelling the property to 5-star status.”
If it all sounds difficult, in terms of structuring, acquiring and running day to day, that’s precisely because it is. “Tricky is an understatement,” says Ibrahim. “This is perhaps one of the most complicated transactions I have ever come across. However, this has opened innumerable doors for ADF and will lead to many additional transactions throughout the region, especially Indonesia. This position will continue to generate pure alpha in the near-term. A near-term exit would be premature, considering the company has the potential to go public.”
July 2007 Asian Investor
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