After years of negotiations, US-backed Danao International Holdings has won the right to go it alone as its local partner, Lam Dong Tourist Company, has agreed to withdraw from the ailing Dalat Resort Incorporated (DRI).
US-based Danao gets nod to buy out local partner in Dalat Resort Inc.
“The government has officially approved proposals by the Ministry of Planning and Investment and Lam Dong province government to allow Danao to buy out its local partner to take over the Dalat Resort project,” DRI general director Pham Thanh Trung told Vietnam Investment Review last week.
The move put an end to long-standing disputes between Danao and its local partner over the ownership structure and depreciation of fixed assets, including difficulties with land-use rights that the local partner contributed to the $42-million joint venture.
DRI, a 50/50 joint venture between Danao and Lam Dong Tourist Company, was licensed in 1991 to run the five-star Sofitel Dalat Palace Hotel, four-star Novotel Dalat Hotel, 16 villas and an 18-hole golf course in the central highlands hill station first made a mountain resort by the French.
Over 14 years, the joint venture reported cumulative losses of $38m, including a loss of $17m from depreciation of fixed assets, which the local partner had requested be charged against the foreign investor’s capital.
Under an agreement with its local partner, after going wholly foreign, Danao will be responsible for all of the joint venture’s past losses, and give back 14 among the venture’s 16 villas on Tran Hung Dao Street that were left unused for years to the Lam Dong province authorities.
Instead, Danao will operate the two hotels and the golf course by itself for 35 years or more.
“To operate these properties, Danao will have to pay $0.35 per square metre or $3,500 per hectare worth of land rental per year,” Trung told VIR.
“The move [to be sole operator] will help the foreign investor with more freedom to reorganise the loss-making business in order to make it work,” he said.
Although the two hotels in Dalat currently have occupancy rates of 30 per cent on average and the golf course fails to lure guests, Trung said he has seen opportunities ahead to improve business.
“After going wholly foreign-owned, we will expand our project by investing more money in developing facilities to attract new guests, strong marketing practices and hiring more staff,” he said.
Trung said Danao will develop a 300-seat convention hall on the site of the five-star Sofitel Dalat Palace Hotel to tap increasing MICE tourists.
“We have hired France’s Archetype to design the project and are now awaiting the local authorities’ approval before going ahead,” he said.
Danao International Holdings, founded by late US billionaire Larry Hillblom, who helped start fast delivery giant DHL, has invested more than $100m in Vietnam over the past 15 years.
Besides its Dalat projects, Danao has developed assets in Phan Thiet, including Phan Thiet International Golf Club and a 123-room Novotel Coralia Ocean Dune Hotel, as well as Riverside Apartments in Ho Chi Minh City, now reportedly almost fully occupied.
No. 769/July 10-16, 2006
By Nguyen Hong