Paradise lost for Fiji investors

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Fiji may be tropical but it has turned out to be no paradise for New Zealand investors, developers and financiers.

Three big New Zealand-funded developments have hit trouble.

The Strategic Finance-backed Fiji Beach Resort & Spa managed by Hilton, the Bridgecorp-funded mammoth Momi Bay and the Strategic-funded 650ha development parcel known as Denarau Land South.

All three are on Denarau Island, fast becoming a ghetto for the cash-strapped of New Zealand as tens of millions of dollars vanish.

The island, seen by many as the key to unlocking Fiji's wealth, has a string of international resorts and hotels as well as the redeveloped Port Denarau with its shops and restaurants.

The port is the gateway to Fiji's beautiful Mamanuca and Yasawa island groups and Denarau is a congregation point where tourists from Nadi Airport reach the islands' clear warm waters.

But political coups, the disastrous January floods, fierce cyclones, the global downturn and its tourism backlash have taken a toll.

Bridgecorp and Strategic are calling in loans on Denarau Island properties they funded to the tune of about $200 million. Developers are struggling and investors are hurting, with Hilton villa owners owed more than $1 million and split into bitter factions.

On Tuesday, Bayleys tried to sell Momi via auction but it was passed in. Bidding only got to $41 million, well short of Bridgecorp's $100 million-plus loan on the unfinished development and Fiji National Provident Fund's $80 million mortgage. "Bayleys is still negotiating with the highest bidder. We are confident of a positive outcome, but there is no timeframe on that," said spokesman Scott Cordes on Thursday.

Also this week, Auckland developer Neville Mahon said receivership was imminent for Denarau Investments, the development and construction company expanding the Hilton resort. "I'm jammed like meat in a sandwich between Bank of Scotland and Strategic," Mahon said.

Strategic loaned $75 million and Bank of Scotland provided a $45 million facility on the lavish beachfront property which opened in 2006 and continues to operate, although its expansion via development of an extra 90 villas cannot be finished and $1 million of investor payouts are frozen.

Many Kiwi and Australian owner/investors forked out in the vicinity of $400,000- $1 million each for the sumptuous Hilton villa apartments.

Ex-All Blacks Andy Haden and Ian Jones, Premium boss Brian Guy and Viaduct Harbour Holdings' Rob Campbell are some. Hilton has 160 apartments but most have more than one bedroom so become 273 hotel rooms.

The series of two-level blocks stands side-by-side along the pristine 1.5km beachfront. Some of the owners were particularly angry this week and have split into factions.

Mahon said discussions had been held with KordaMentha's Grant Graham who might be appointed receiver to Denarau Investments. Graham said yesterday he had no role yet.

Some owners want to form their own business. "The Villa Owners' Association [VOA] is in discussions with the pending receiver to ensure that the resort continues to provide the highest levels of service to guests and propose a structured management agreement and level of transparency that will alleviate the historical issues that have led to the current set of circumstances.

"The VOA is very confident that with the correct systems and structure in place, the Fiji Beach Resort & Spa will be completed as originally intended and continue to provide holidaymakers with the ultimate Fijian holiday experience," the group said.

Mahon has proposed paying back $55 million of Strategic Finance's $75 million loan but without interest and over four years, an offer Strategic chief executive Kerry Finnigan has rejected.

Finnigan said his business was just protecting its interests.

"We're acting in the best interests of our mum and dad investors. You've got a borrower under enormous pressure and looking to try to absolve himself of his responsibilities and obligations and blaming the financier for it. The long and short of it is that it was his project that has had a cost blowout," Finnigan said.

Asked about Mahon's criticisms of Strategic in a letter this week sent to investors, Finnigan said Mahon had failed to get his way and had reacted to that. Finnigan praised the hotel and villa project, saying he had visited it recently and that it was by far Denarau Island's single best international resort. But Finnigan also cites a concept he calls "Fiji risk", saying the country has particular troubles recognised by financiers.

Fiji's problems include an unstable political system, difficult land tenure issues because so much property is native title, cost-control issues, problems getting materials and skilled construction workforces to sites, and meeting the needs of demanding international hotel operators.

But Mahon defends Fiji against the critics who cite political unrest sparking his troubles. "People are trying to get me to say something that's not true and that's that Fiji's political situation has caused this," Mahon said.

He blames financiers rather than Fiji's Prime Minister Frank Bainimarama and said Strategic was forcing his hand by requesting Bank of Scotland to appoint a receiver and refusing to accept a deal he thought was reasonable.

Mahon has been desperate to complete the partly finished 90-villa development, a bistro, swimming pools and back-of-house resort upgrade to Hilton's requirements. Without the facility upgrade, the 90 new villas can't be opened and without more cash, he can't complete the villa project.

Richard Hatherly, originally from Dunedin, scoffed at talk of trouble in Fiji and says his two-star resort is "cranking".

"Three-star to five-star resorts are hurting with low occupancy and bad publicity but the budget traveller, not that worried about supposed political unrest, is on the beach having fun and enjoying that unique Fijian hospitality at discount prices. We're under way with a second resort, with plans for another four or five sites," he said.

Property experts cast doubt on Fiji's ability to ever return money to New Zealand investors.

Philip Toogood, Bayleys Fiji managing director, says New Zealanders considering buying property in Fiji have one key lesson to learn: buy first for the lifestyle, second for income.

Premium's Brian Guy is unconcerned about the income freeze and said he never bought his Hilton villa for the return but for lifestlye and family reasons.

Deborah Kelland wonders if she could have made money by expanding Kellands Real Estate in Fiji but is glad she didn't now.

Barfoot & Thompson director Peter Thompson is the most sceptical and wonders what Kiwis who bought in Fiji were thinking. "If you go back two years ago, we were all spending money left, right and centre. But was it wise?

"I wouldn't buy property in Fiji. The resorts are very nice but you have to go through some pretty average areas to get there. I would buy on the Gold Coast before I bought in Fiji. It's the political system that's the worry."