December 08, 2011
Barely a week after Kerzner International signed over its holdings in The Bahamas and Mexico, reports are circulating that plans are afoot to sell the company's 50 percent stake in the Atlantis Dubai property. At issue is hundreds of millions of debt set to mature next year and 2013, according to a report in the Wall Street Journal, which would leave Kerzner International with ownership in six One&Only resorts and a four-year contract to manage Atlantis on Paradise Island.
Kerzner also has a 15-year contract to manage the One&Only Ocean Club and the One&Only Palmilla in Mexico. When contacted by Guardian Business, a Kerzner International representative said: "We generally don't comment on rumors or speculation." The comment is reminiscent of the past few months as the company inched closer to restructuring its $2.5 billion debt.
On Nov 30, Guardian Business attended the press conference where Sol Kerzner, the founder of the Atlantis empire, announced that Brookfield Asset Management would take over The Bahamas and Mexico properties in exchange for taking on $175 million in debt. Brookfield must now work with the other lenders to extend the remaining mortgage debt, thought to be in the realm of $2.3 billion. James Smith, a former state minister of finance, told Guardian Business that the possible Atlantis sale in Dubai is indicative of not only the extent of Kerzner's debt woes, but also a change in the resort ownership model.
"This model, with a huge property and casino and real estate development, owned by one or just a handful of people, perhaps has had its day," Smith said. "With the recession and its impact, coupled with Kerzner's age, this could be part of his exit strategy. He is getting the value out of the properties while he can enjoy it." Kerzner, now 76, will be 80 years old when the four-year management contract comes to an end on Paradise Island.
Smith said he was "mindful" of the short-term contract. "I think The Bahamas needs to look at the medium term. The question going forward is the new owners. Their first responsibility is to the shareholders. When someone comes along, they might be willing to separate the property. That's the real risk," he added. During the press conference on Nov 30, Kerzner expressed the sentiment that entering into management agreements, rather than owning the land and company outright, was not unusual in the new economic climate.
He told reporters he accepted his new position, and from an operational point of view, nothing would change. "This would be an easy way to get out," Smith said, referring to Paradise Island and possible sale of the Dubai property. "At the same time, he can stay in the game; [he] has control of the franchise. He comes out pretty good. What depends is the fate of these properties in the future."
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