Tainui and council lose millions on plush hotel

By PAUL YANDALL

The Hamilton City Council and Tainui have been forced to pay an extra $500,000 each to keep their Novotel Tainui hotel afloat after the ANZ Bank wiped more than $5 million off the value of the business.

In a tense meeting last night, city councillors decided they had no option but to put a further $512,400 into a term deposit as security on loans from the ANZ following its devaluation of Novotel's worth from $26.5 to $21.2 million.

Failure to do so would have exposed the plush four-star hotel to the risk of a bank foreclosure - and the council to the total loss of the $6 million it has invested in the business.

The council and Tainui each hold a 42 per cent stake in the hotel. Singapore-based Accor Asia Pacific owns the rest and has had to put up $195,200 because of the bank move.

The devaluation follows a string of money woes for Tainui, which received $170 million as a Treaty of Waitangi settlement five years ago but has since had to write down the value of its investments by $40 million.

Tainui legal adviser Shane Solomon and Accor regional general manager Nigel Harper said their organisations would provide the extra money for the hotel.

Mr Solomon said the initial valuation might have been "a little optimistic," but he was confident that the hotel would start performing to expectations within the year.

The hotel, beside the Waikato River in the middle of Hamilton, opened last May. In its first seven months, it averaged 40 per cent occupancy and lost $272,000.

The loss was less than expected, and shareholders are not expecting a return on their investment in the coming year, despite a prediction of a modest profit.

The council, Tainui and Accor provided close to $17 million of the money used to start the operation, and the ANZ lent $9.7 million.

Under the lending agreement, the ANZ loan could not comprise more than 40 per cent of the hotel's market valuation.

The ANZ's new valuation pushed its contribution above the 40 per cent threshold, so the three partners must pay more to bring it back in line with the agreement.

At last night's meeting, city council chief executive Tony Marryatt, one of the council's representatives on the hotel's board, said the Novotel was a long-term investment and the revaluation was a minor market correction.

Mr Marryatt said the best course of action for the council was to place its $512,400 on term deposit with the ANZ as security.

Councillor Gary Mallett, an opponent of the city's involvement in the business, said the venture was slowly turning into a disaster and the council had to be wary of throwing good money after bad.

Mayor Russ Rimmington said the hotel was an important venture that had already brought benefits to the city.

The council voted 11-3 in favour of providing the extra money.