BANGKOK – With more than half of Thailand’s 60,000-plus hotels and guest houses still shuttered since the government closed the national borders in April and with a waiver on interest payments hotels and resorts owe to banks set to end in October, the Thai hotel scene seems primed for a Covid-19 fire sale.
Adding to hoteliers’ woes is the murky future of Thailand’s tourism industry, with the enduring lack of a Covid vaccine and the Thai government’s reluctance to reopen the country to mass tourism given the resurgence of the pandemic in other countries. Selective long-stay tourists who agree to spend 14 days in quarantine upon landing may be allowed starting in October.
Thailand’s economy is unusually dependent on tourism, accounting for an estimated 18% of its annual gross domestic product (GDP), with 12% of that recently contributed by foreign tourists. Tourism revenues hit an estimated 1.9 trillion baht (US$62 billion) in 2019.
The sector had been one of the few success stories in the tottering kingdom’s past decade of generally slowing economic growth and as such could easily rebound in the next two to three years given the right circumstances.
“If you speak to most hotel operators, the view is still overwhelmingly positive about the mid to longer-term,” said Barny Swainson, senior director of Colliers International Thailand, a property consultant.
“The long-term trend is really positive, because Asia is becoming richer and people go on holiday more. Most hoteliers believe there will be an upward increase in Chinese visitors in the mid to long term, so the hotel business is looking at how to navigate the next two-three years till you get back to a more normal scenario,” Swainson said.
Of the 39.8 million international tourists who visited Thailand last year, some 11 million of them were Chinese. But the number of international tourists who visited Thailand in the first half of 2020 was 6.7 million, down drastically from the 19.8 million arrivals a year earlier.
The Tourism Ministry optimistically anticipates 8 million tourists this year. There were zero international tourist arrivals between April and July.
The lingering optimism about the hotel sector’s mid-term prospects in 2021-2023, despite the dismal short-term outlook, has created a reluctance to sell at fire sale prices. At the same time, there are potential buyers for distressed hotel assets, especially cheap ones.
Asset World Corporation (AWC), the hospitality arm of Thailand’s giant TCC Group – founded by billionaire liquor tycoon Charoen Sirivadhanabhakdi – is definitely in the market for bargains.
AWC’s CEO and president Wallapa Traisorat told a recent gathering of stock analysts that the Covid-19 crisis had created plenty of acquisition opportunities for her company’s fast-growing hotel chain, which she said is now reviewing some 100 potential hotel deals.
AWC’s initial public offering (IPO) raised 48 billion baht ($1.5 billion) in September 2019 before its listing on the Stock Exchange of Thailand (SET) in October.
The group, which already has 17 luxury hotels with 4,896 rooms, has raised an additional 50 billion baht ($1.6 billion) budget, primarily from Thai banks, for an acquisition spree over the next few years.
AWC’s focus is on Thailand-based properties on freehold land – as opposed to leasehold land – at diversified nationwide locations and selling at bargain prices of 50% discounts or more, Wallapa told the analysts. AWC is perhaps one of the few Thai hotel chains that is currently flush with cash and in a position to buy not sell.
The Dusit Group, another major local hotel operators, has already invested heavily in the transformation of its iconic Dusit Thani Hotel into a mixed-use complex situated in the heart of Bangkok’s central business district.
The transformation is being done in partnership with the local Central Pattana Group, the country’s leading department store operator with interests across retail and increasingly in hotels.
Central’s Centara hotel chain, although less financially stretched than the Dusit Group, already has a well-diversified portfolio in Thailand and increasingly abroad, so is likely to be cautious about new projects, according to analysts.
There are also some emerging international players in the market, such as the recently established Destination Capital private equity fund, which is apparently keen on Thai hotel buy-outs at knock-down prices.
“I get calls three times a week from guys saying, ‘I want to buy a hotel for half price on the beach. How many are there?’ said Bill Barnett, the Phuket-based managing director and founder of C9 Hotelworks, a regional hospitality and property consulting service.
Barnett has bad news for the bargain seekers, at least for the moment. “We don’t see a lot of significant properties coming up,” he said.
Thailand’s hotel industry has been in the hole before. In the wake of the 1997-98 Asian financial crisis that started in Thailand, several over-leveraged banks, finance companies, industrial groups and shopping chains (such as the Charoen Pokphand’s joint ventures in Makro and Tesco) were forced to seek outside investors to survive the crash.
However, despite predictions of a huge post-1997 fire sale of condominiums, offices and hotels, it never really occurred as Thai owners generally held out or refused to pay their creditors until the dust settled and the economy recovered.
The financial scene was a lot different then than in the 2020 Covid-era because many Thai companies had borrowed from international banks and suddenly saw their dollar debts double with the massive depreciation of the Thai baht.
Nowadays, most of Thailand’s private debt is predominantly owed to Thai banks or floating in the baht-denominated bond market. Significantly, the baht currency has remained remarkably strong despite the Covid-induced economic crisis, due to the country’s perceived as strong underlying financial health and huge store of international reserves.
“It’s not like 1997 when there wasn’t any money,” Barnett said. “There is still cash out there and there are hotel owners who have other businesses, so the banks aren’t going to crack down on them. It’s not like you have a lot of people saying, ‘I’ve got to sell right now’ like when there is a currency depreciation and people rush out the door.”
Even in the rubble of past crises, including the 1997-98 Asian financial crisis, the 2004 tsunami disaster and the 2008 global financial crisis, Thai hotels were seldom, if ever, put on the market at slashed prices, analysts note.
“I got a call the day after the tsunami – ‘I want to buy a hotel,’” Barnett said. The 2004 tsunami devastated swaths of Phuket Island and neighboring provinces Phang Nga and Krabi, wrecking beachfront properties and leaving an estimated 5,000 dead. But even then, there was no hotel fire sale.
“There were a few hotels that traded, maybe eight or nine that traded through the whole process but that was it. It wasn’t 50 hotels,” Barnett recalled.
The big question hanging over the hotel industry today concerns how long will the Covid-19 crisis last, and can highly leveraged properties survive the downturn. Thai banks will play an important role in keeping the more distressed hotels afloat.
The central bank has established a 500 billion baht ($1.6 billion) soft loan scheme aimed at facilitating low-interest loans (2% interest rates) to SMEs including hotels.
It has also imposed a waiver on SME interest payments to local banks until the end of October. To facilitate both schemes, the Bank of Thailand has cut the deposit guarantee amounts the banks need to pay.
Thus far the banks have been reluctant to draw on the soft loan scheme for hotels, partly because they don’t need new loans for operating capital at a time when there is little to no business.
“There is no need for new loans,” said TMB Bank CEO Piti Tantakasem. “Should you open up all the hotels and turn on their air condition systems without enough customers to hit the break-even point. No, so you have to put a lot of businesses into hibernation.”
The average occupancy rate for Bangkok hotels in the first half of 2020 was 32.6%, down 80.4% year-on-year, according to a recent Colliers Thailand report.
The Thai government, in a bid to keep hotels alive and preserve the jobs of some 4 million workers employed in the tourism sector, has been promoting domestic tourism by reimbursing 40% of the hotel room rates of local tourists.
While this has benefitted some destinations, primarily those that are within driving distance from Bangkok such as the seaside town of Hua Hin, it can hardly hope to fill the void left by nearly 40 million international visitors.
Revenue from tourism during the first half of 2020 amounted to 332 billion baht, a whopping 65% year-on-year decline.
The credit pinch may yet come for some hotels when banks are forced to restructure their loans to the sector and start collecting interest again post-October, but financial crunch time is still likely distant, some analysts note.
“It’s a matter of time really,” Swainson said. “It’s been a very sharp shock but as long as it’s a short, sharp shock it’s very survivable, for everybody. But if this shock is the new norm, then in the end something has to give.”