BANGKOK – With Thailand suffering its third and worst wave of the Covid-19 pandemic, hopes for a swift revival of the tourism sector, accounting for as much as 20% of gross domestic product (GDP), have once again been dashed.

For Thailand’s huge inventory of hotels —there are about 50,000 hotels and guest houses nationwide — losses are mounting and an asset price-clearing moment of truth is inevitable, though the question in the industry is when.

To be sure, the kingdom’s hotel sector is no stranger to crisis. The industry was pummeled previously by the 1997-98 Asian financial crisis, which led to a 50% devaluation of the Thai baht and a doubling of debt for hotels that had borrowed in dollars, and then the tsunami of 2004, which destroyed hundreds of hotels in Phuket, Krabi and Phang Nga and killed 8,000 people, mostly foreign tourists.

But today’s Covid-19 crisis, which has seen a surge of some 32,000 cases and 70 deaths in a month, is of a different ilk, say analysts.  

“This is a different ball game compared with 1997,” said Chanin Donavanik, chief executive at Dusit International, a prominent Thai hotel chain. “The suffering is more widespread and in 1997, at least for the tourism industry, the impact was just for a few months before tourists started flocking into Thailand because of the cheap baht. This time I think the recovery will take 3-5 years,” he predicted.

With the number of foreign visitors dropping from a peak of 40 million in 2019 to 6.7 million in 2020 (and those arrivals just during the months of January-March before Covid lockdowns were enforced and incoming tourism banned), thousands of hotels, restaurants and souvenir shops have now been shuttered for more than a year. Others have stayed open, but mostly at a loss.

Guesstimates are that around 50% of the 6 million Thais previously employed in the tourism sector have lost their jobs, and those who have managed to hang on have done so on reduced salaries.

A motorbike passes through an almost empty Khao San Road tourist area during the Songkran holiday in April 2021. Photo: Pornprom Satrabhaya / Bangkok Post via AFP)

Thailand’s economic bottom line has suffered as a result, with a 6.1% contraction of GDP in 2020 and another 0.5% contraction predicted in 2021 by the Bank of Thailand (BOT) if only 100,000 international tourists arrive this year – the worst-case scenario.

If the government gets its act together on vaccinations (to date only 0.4% of the 68 million population has been inoculated, the poorest performance in Southeast Asia), and can implement plans to reopen Phuket Island on July 1, when a quarantine requirement will be dropped for vaccinated tourists, perhaps 3-5 million tourists could still visit this year, boosting GDP into the 2-3% growth range.

At the same time, the sectoral uncertainly has had an impact on the much-anticipated fire sale of distressed Thai hotels.

“In 1997 the situation was more predictable – everyone could see that the financial crisis would take a long time to recover, so prices came down across the board,” said Aliwassa Pathnadabutr, managing director of CBRE/Thailand, an international property consultant. 

There are buyers out there. “If you talk about international interest, we have gotten a number of investment funds, like PE (private equity) funds, looking around, but they are mostly Asia-based funds, in Singapore and Hong Kong,” Aliwassa said.

But thus far there have been few transactions. “Now there are hotels for sale, but the price has not come down,” she said. “They are looking to sell at prices that investors are not willing to buy at, so there is a gap.”

To date, one of the few hotels to sell was the 287-room Sigma Jomtien Pattaya Hotel, which was bought in February by Asset World Corporation, the hospitality arm of Thai billionaire Charoen Sirivadhanabhakdi. The property changed hands for 550 million baht ($17.6 million), with another 1.3 billion baht slated for renovation.

Charoen, who made his fortune selling liquor and beer, also benefited from the 1997-98 crisis when his cash-rich group snapped up several properties including the former Imperial Group, a local hotel chain.      

Poolside at Bangkok’s Plaza Athenee Hotel, one of Charoen’s luxury holdings. Image: Facebook

Asset World Corp, now the largest mid to luxury hotel owner in Thailand with 17 hotels under its banner and 4,968 rooms, is one of the few local chains that is well-positioned to go on a buying spree in the Covid era.

The company’s initial public offering (IPO) on the Stock Exchange of Thailand (SET) raised 48 billion baht ($1.5 billion) in September 2019, just months before the Covid-19 crisis hit.

It has since secured funding of 50 billion baht ($1.6 billion) from Thai and foreign banks partly to finance an expansion spree that is targeting distressed Thai hotels, according to Bualuang Securities, which anticipates that AWC could use the pandemic to increase its hotel portfolio by 3,000-6,000 rooms.

“We were approached by both private firms and listed companies that offered over 100 hotels, mainly in Bangkok and some in Phuket for sale since this virus hit the tourism sector,” AWC chief executive Officer Wallapa Traisorat (Charoen’s daughter) told the Bangkok Post in a recent interview. 

AWC may be one of the few Thai hotel conglomerates with the wherewithal to take advantage of the potential hotel bargains. Indeed, others have shown certain liquidity constraints.  

Dusit International, a Thai hotel chain that has properties worldwide, recently needed its joint venture partner retail giant Central Pattana Plc to up its original stake in a massive new development on the site of its original Dusit Thani hotel in Bangkok from 35% to 40% due to expansions of the construction project from 17.4 billion to 21.1 billion baht.   

Many of Thailand’s other hotel chains are owned by powerful conglomerates that have branched out into the hospitality business over the years.

The Singha Corp beer giant has the SET-listed Singha Estate Plc, which owns 39 hotels and resorts; the Charoen Pokphand Group agro-industrial giant owns Fortune Hotel Group, which has 13 hotels; Italthai Group construction leader owns eight hotels including the landmark Mandarin Oriental.

SET-listed Minor International, founded by the Bangkok-based US entrepreneur Bill Heinecke, has a large stable of hotel properties both in Thailand and abroad, and might be well-positioned to buy more. But will any of them make a move in the current depressed climate?

This aerial photo taken on September 30, 2020, shows an unusually quiet Karon beach in Phuket where quarantined tourists can stay. Photo: AFP/Lillian Suwanrunpha

“I’m sure Minor would love to go and purchase a whole bunch of hotels at discount prices, but they have their own challenges to manage their existing real estate,” said Barny Swainson, senior director of Colliers International Thailand, a property consultancy.

Of course, neither Thailand-based nor foreign buyers are going to be interested unless the price is right.

“No rational buyer is going to offer anything other than a discounted price at the moment,” Swainson said. “For a transaction to happen, the price has to make sense to the buyer and they will be budgeting in the costs of reopening to get the hotel back up and running at 40% occupancy rates for 2022 and maybe 60% for 2023,” he added. “Pricing in the market, in the end, is set by the buyers, not the sellers.”       

The main reasons so few transactions have taken place to date is primarily due to the Thai government’s relief schemes run through Thai banks, analysts say.

After the Covid crisis hit Thailand’s private sector hard in April 2020, the BOT announced forbearance measures on bank loans which providing banks with near-zero percent funding to facilitate a moratorium on payments on principal and interest until October last year.

Following the October deadline, the forbearance was extended on an individual basis with the hard-hit hotel sector included. Bank loans to hotels only account for about 3% of Thai banks’ total lending, according to BOT data.

As the Covid crisis dragged on into a second wave in December-January, the BOT came up with a new forbearance scheme in March especially tailored for distressed hotels.

Under the newly proposed “asset warehouse” scheme, hotel owners can transfer their properties as collateral to the banks with a first option to buy the assets back within a five-year period, and permission to keep acting as their operators and managers. The scheme allows the hotel owners to skirt their debt burdens and removes their non-performing loan (NPL) status from banks’ books.

The “asset warehouse” has drawn a positive reaction from Thai hotels which are awaiting the new law’s details, such as clauses on whether tax on the asset transfer fees will be waived.

“I think the warehousing is another option for the banks and the borrowers,” said Jaturong Jantarangs, assistant governor at the BOT. “But I think our focus is more on debt restructuring. I think that’s the best way to deal with the short-term Covid 19 problems,” he said.

Volunteers clean Wat Traimit temple in Bangkok amid concerns over the Covid-19 outbreak. Photo: AFP/Mladen Antonov

Many of the bigger hotel groups and owners have already had their debt rescheduled, he said.

“My assessment is that for the existing borrowers on their books, the banks are helping their customers very well, beyond my expectations,” Jaturong said in an interview with Asia Times.

That has been true for the bigger hotel groups with established credit with the banks, but perhaps less so for the smaller players.

“If you have a good relationship with the banks, the banks try to help you out,” said Marisa Sukosol Nunbhakdi, president of the Thai Hotels Association (THA), a local trade group.

“I think it is a good option for owners who want to keep their properties, but have no way of surviving at the present time and have no reserve funds left,” Marisa said. “And it’s a way of helping businesses remain in the hands of Thais because we are at risk of owners selling out to international investors.”

That risk is only slight if Thai hotel owners continue to maintain their sale prices above what buyers are willing to pay for them. Until those prices come down to market-clearing reality, neither foreign nor local buyers will be interested, analysts say.

That, of course, could change when the overall picture for Thailand’s beleaguered tourism sector becomes clearer. For the small hotel owners who have been closed for more than a year and don’t have the resources to spend on reopening when things start to look a bit better in 2022 or 2023, selling out will be the best option, industry sources said. 

“Intuitively people know that we are right at the bottom of the market and that when tourism comes back things should pick up, so people are trying to avoid selling at the bottom of the curve if they can avoid it,” Collier’s Swainson said.

“And people have been given the tools to avoid selling at that point,” he added. “But they have been alleviating the symptoms but not curing them,” Swainson said of the various BOT schemes.

Indeed, a crunch seems inevitable given the sheer size of Thailand’s hotel industry. According to the THA, there are some 16,000 registered hotels in Thailand. But if unregistered hotels are included, the total number is likely closer to 50,000, the figure given by website booking operators.

Domestic tourism has kept certain but not all Thai hotels afloat during the Covid crisis. Image: Facebook

Even if smaller hotel owners join the “asset warehouse” scheme with a first option to buy back in five years, there is a good chance they will not have the financial resources to do so.

“I think the bigger boys will survive, the medium-sized boys will survive, but the little boys will have problems,” said Dusit’s Chanin. “In Thailand, I think there will be a lot of establishments closing down permanently or they will have to sell out.”

Surprisingly, there is still a great deal of local optimism about the future of Thailand’s tourism industry and the likelihood that arrivals will return to the 40 million high-water mark as early as 2024-2025.

One of the reasons for Thailand’s global appeal is its reputation as a “good value” destination, which in part rests upon the glut of hotels which has inevitably kept room rates down. This is not likely to change any time soon, industry representatives say.

“As long as there is a free market, and long as travelers can come back, there is going to be a hotel price war and we will remain a good value destination,” said THA’s president Marisa.