|By Charoen Kittikanya, Bangkok Post,
ThailandMcClatchy-Tribune Business News
Sep. 6, 2006 - Two years ago the stakeholders of the Erawan Group decided it was time to transform the family-run enterprise into a professional organisation with an eye to growth, so they recruited Kasama Punyagupta, a former investment banker with the Thanachart Group and Merrill Lynch Phatra.
With a young, energetic president and CEO taking the lead, the Erawan Group (formerly Amarin Plaza Plc) began to move ahead with a dramatic series of reforms.
It began in October 2004 when three major shareholders of Amarin Plaza paid 2.1 billion baht to buy back all of the shares held by WREP Thailand Holding Co, a US-Singapore real estate investment fund, thus regaining control.
The three shareholders -- City Holding Co, Sukakarn Wattanavekin and Mitr Phol Sugar Corporation Ltd -- increased their combined stake from 25.1 percent to 62.1 percent.
Erawan's capital grew -- to eight billion baht today from about three billion baht two years ago, and share liquidity also improved, to average turnover of seven million baht per day from less than a million baht earlier.
Directors spent four months searching for a new chief executive before recruiting Mr Kasama to set out the group's vision to become one of the country's leading hotel developers and investors by 2008.
The group aims to be in the top two in terms of market capitalisation and EBITDA (earnings before interest, tax, depreciation and amortisation), with at least 12 hotels from six-star to budget in key business and tourist destinations.
"The logic behind our master expansion plan is that we invest in what makes sense in terms of market and customer needs and economic viability with reasonable returns," Mr Kasama said.
"We have our unique business model -- creating the right hotel in the right place with the right partner at the right price (based on project's cost and return on capital employed)."
Under the plan, the Erawan Group has earmarked 8.35 billion baht for the development of new hotels. They include 10 economy hotels under the Ibis brand (3.5 billion baht); a recently announced Holiday Inn (1.8 billion); Courtyard by Marriott Bangkok (one billion); Six Senses Resort & Spa (1.25 billion); and the newly opened Renaissance Koh Samui Resort & Spa (800 million baht).
The expansion is funded by operating cash flow and efficient use of project debt.
Additional support is expected from a rights and warrants issue that is set to finish by December 2007. Warrant conversions are expected to raise an additional 520 million baht in equity capital from 1.454 billion baht.
"Funding from internal cash flow is fairly high, as the contribution from current business through two existing hotels is about 1.1 billion baht a year," said Mr Kasama. "We have also recently agreed on a financing plan with Siam Commercial Bank and Krung Thai Bank."
As of June 30, the Erawan Group was 45 percent owned by the Vongkusolkit family, 33 percent by the Wattanavekin family, 4 percent by MBK Plc, 7 percent by foreign custodians, 3 percent by local funds, and 8 percent by other shareholders.
The Vongkusolkit family was ranked the sixth richest in Thailand this year by Forbes Asia magazine, with interests in the Mitr Phol Sugar Corp, the energy firm Banpu Plc, the Grand Hyatt Erawan Hotel, Amarin Plaza and others, including a biomass power plant, ethanol production, logistics and warehousing, a stock brokerage and a particle board manufacturing business.
At the moment the hotel business does not contribute a significant amount of revenue for the Vongkusolkits, but given Thailand's growing tourism industry and the group's expansion plans, hotels are expected to be one of the family's cash cows over the next three years.
According to Mr Kasama, with assets doubling to 16 billion baht over the next three years, sales revenue from Erawan's hotel business could more than double from 2.9 billion baht in 2005.
By 2009, hotels are expected to contribute up to 90 percent of the group's revenue from 83 percent at present. Non-hotel business, including office rentals and shopping centres, generate the remaining 17 percent.
"We will be a pure 'proxy' operator," said Mr Kasama. "Our hotels will cover all main market segments from budget travellers to millionaires."
The company's shares (ERAWAN) closed yesterday on the Stock Exchange of Thailand at 4.02 baht, down two satang, in trade worth 8.48 million baht. Over the past 52 weeks the shares have traded in a range between 1.39 and 4.64 baht.
To see more of the Bangkok Post, or to subscribe to the newspaper, go to http://www.bangkokpost.com.
Copyright (c) 2006, Bangkok Post, Thailand
Distributed by McClatchy-Tribune Business News. For reprints, email firstname.lastname@example.org, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. IHG, MAR, ERAWAN,