Hotel Developers responds to Cornel Perera’s rebuttal

Following is a response from Hotel Developers (Lanka) Limited to the article titled ‘Cornel Perera rebuts Basil’ published in the Daily FT of 24 November 2011

We give below a fair summary of the background of establishment of Hilton Hotel Colombo given by the well-respected Attorney General of the Country the late K. C. Kamalasabayson, P.C. on 22 August 2001:

The Colombo Hilton Hotel

A company by the name of Lanka Japan Hotels Limited was incorporated on 15 March 1983 for the purpose of constructing and owning a five star class hotel in a prime land in the City of Colombo. Cornel Perera has had initial negotiations with the Hilton International Group to manage the business carried out by that hotel.

Lanka Japan Hotels Limited has subsequently changed its name to Hotel Developers (Lanka) Limited on 20 October 1983. Mitsui and Company Limited and Taisei Corporation acting as a consortium of investors were also shareholders of Hotel Developers (Lanka) Limited. They were promoters of the company, contractors for the construction of the hotel and furnishing it, and also were lenders for the project. Hotel Developers (Lanka) Limited was a public quoted company and there was a public share issue in March 1984.

Cornel & Company Ltd obtained a land at Echelon Square, Colombo 1 from the Urban Development Authority (UDA) on a 99-year lease on 7 February 1984. The value of the land was in excess of Rs. 136,808,250 (Rupees One Hundred and Thirty Six Million Eight Hundred and Eight Thousand Two Hundred and Fifty only). However the leasehold of the land was agreed to be purchased at Rs. 136,808,250.

The lease agreement was for Cornel & Company Ltd to pay an initial down payment of Rs. 27,361,650 and for an agreed annual lease rental of Rs. 3,316,564 to be paid thereafter over a period of 33 years. Cornel & Company Ltd. has paid the down payment of Rs. 27,361,650 but failed to pay any rentals thereafter.

Cornel & Company Ltd. has thereafter leased the said land to Hotel Developers (Lanka) Limited at a higher value amounting to Rs. 250,897,500 (Two Hundred and Fifty Million Eight Hundred and Ninety Seven Thousand five Hundred ) in 1984 and shares to that amount had been issued to Cornel & Company Ltd. by Hotel Developers (Lanka) Limited.

A Preliminary Agreement for the construction of the hotel was entered into between Cornel & Company Ltd., the Japanese Investors namely Mitsui & Co., Ltd. and Taisei Corporation on 30 March 1983. This was for the purposes of constructing and owning/operating a five star class hotel. A Construction Agreement for this purpose was entered into between Hotel Developers (Lanka) Limited and the Japanese contractors/investors, namely Mitsui & Co., Ltd. and Taisei Corporation on 31 January 1984 for the construction of the hotel.

An Investment Agreement was also entered into on 31 January 1984 between Hotel Developers (Lanka) Limited, the Japanese investors and the Government of Sri Lanka to facilitate utilisation of the Japanese Yen loan granted by the Japanese investors for the purposes of the construction. The Government of Sri Lanka had to become a shareholder by the operation of the Foreign Loans Act and own more than 50% of the shares of the Hotel Developers (Lanka) Limited for this purpose.

A Loan Agreement was signed on 31 January 1984 between the Japanese investors, Mitsui & Co., Ltd. and Taisei Corporation as lenders and Hotel Developers (Lanka) Limited as the borrower. The Government of Sri Lanka became the guarantor to the loan given to Hotel Developers (Lanka) Limited in terms of this Loan Agreement. Shares for Rs. 250,897,500 were transferred to Government of Sri Lanka by Cornel & Company .Ltd for this purpose. No consideration was paid for the shares so transferred.

The Colombo Hilton Hotel commenced its operations on 1 July 1987.

These facts cannot be disputed by Cornel Perera:

(1) When obtaining the leases from the UDA on 7 February 1984 Cornel & Company Ltd paid to the UDA only an initial payment of Rs. 27,361,650 and made default in payment of lease rent for the leased lands to the UDA in payment of the balance (Rs. 109,446,600) by 33 instalments as agreed;

(2) Cornel & Company Ltd. subsequently on 15 February 1984 sub-leased the said lands to Hotel Developers (Lanka) Limited and obtained shares for capitalised value of lease in a sum of Rs. 250,089,750 which were later transferred by Cornel & Company Ltd. to the Government of Sri Lanka to enable the Government of Sri Lanka to issue Government Guarantees to Japanese lenders. Ultimately the Government of Sri Lanka had to pay Rs. 4,435,986,895 to the Japanese lenders on the Government Guarantees on behalf of Hotel Developers (Lanka) Limited. The total loan outstanding from Hotel Developers (Lanka) Limited to the Government of Sri Lanka by way of capital and interest as at 31 March 2011 is Rs. 12,098,634,769.

(3) Furthermore, Hotel Developers (Lanka) Limited was committed to pay approximately 33% of gross operating profit to Hilton Worldwide (formerly Hilton International) on account of management fees and group service charges which were exorbitant when compared with payments on management fees on similar management agreements.

(4) As Cornel & Co., Ltd. defaulted in the payment of the annual lease rental payments, the lease from the UDA stood cancelled on 26 July 1999.

We do not consider it necessary to join issue with Cornel Perera on every statement of fact he has caused to be published in newspapers except to point out that the matters set out above show that what Minister of Economic Development said in Parliament are on the basis of the facts which cannot be disputed even by Cornel Perera.