Aventura: Progress report

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Public Enterprises

04 June 2003
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Meeting report

PUBLIC ENTERPRISE PORTFOLIO COMMITTEE
4 June 2003
AVENTURA: PROGRESS REPORT

Chairperson: Mr B. D. Martins

Documents handed out:
Aventura Briefing to the Portfolio Committee (see Appendix)

SUMMARY
The Department has accepted Forever Siyonwaba Resorts as the preferred bidder to take over the remaining eight Aventura resorts and is satisfied that the consortium can meet the obligations of the contract, that is to honour existing members time shares and take over the current staff and retain them for at least three years.

MINUTES
Mr Malixole Gantsho (Deputy Director-General: Restructuring) said that it is common cause that the Government has decided to divest itself completely from running the state-owned Aventura resorts as they were not performing. Currently, the Government is busy disposing of the remaining eight resorts. Forever Siyonwaba Resorts is the preferred bidder. It is 70% owned by Forever Resorts South Africa , a subsidiary of a US company, and 30% owned by Siyonwaba Leisure, black-owned empowerment group. He raised three issues: Club Prive, time-shares and operational costs (see Briefing document for more details).

Discussion
Mr Komphela (ANC) asked about its liabilities to debenture and time-share holders. He was pleased that the liabilities are no longer a burden on the Government. He asked how many people are involved in the Club Prive time-share. What was the minimum number of years given for contracts to industries? Finally did Mr Gantsho think that Siyonwaba is a good enterprise or not.

Mr Nonkonyana (ANC) was concerned about the legal aspects. He was happy with everything that had been done. Siyonwaba was an attractive enterprise. Was there any alternative to this idea of Siyonwaba and is there any strategy for income generation in this black enterprise, Siyonwaba.

Mr Nzimande (ANC) asked about the land claims on two of the eight resorts. Is there any operational plan to address the land claims? He further asked for an indication of Club Prive's business value.

Mr Sibiya (IFP) asked if there is any commitment to comply with Government’s call to train the existing staff. Was there any commitment to train employees after the lapse of three-year contract?

On the training of employees, Mr Gantsho said that legislative requirements serve as a guideline. There are certain provisions on training and development in place for each level of personnel. On the termination of contracts, he said that resorts that are currently operating, indeed resulting to noticeable fees. He said that the same employees will be working in Aventura, but a new management will take over.

On the issue of land claims, R8m is set aside to deal with this matter. If this amount is not sufficient, income generated from the sale will contribute to this. The current bidder is aware of such claims.

On the question of whether Siyonwaba is a viable option or not, he said the due diligence examinations are in and they were satisfied that the information indicates that the consortium could meet its obligations.

On the question on debentures, he said that debentures would be honoured by the new owners
The debenture members had paid R10 000 up front to have access to the resort over ten years
There is a problem with the verification of the number of days as there are no records.

Mr Lucky Montana (Chief Director: Parliamentary Services and Stakeholder Liaison) added that after the three-year period, the new owners would be able to down-size but the provisions of the law would apply in this regard.

He said that the Government wants to exit from this industry since it has gone through difficult times.

Mr Gantsho noted that the conclusion of disposing of the Aventura group is quite welcome.

The Chair thanked Mr Gantsho and said the Committee would call him for another briefing on this later.

Meeting adjourned.

Appendix:
DEPARTMENT OF PUBLIC ENTERPRISES
BRIEFING TO THE PORTFOLIO COMMITTEE

CLUB PRIVE
The preferred bidder, Forever Siyonwaba Resorts has proposed the most acceptable strategy to the steering committee to deal with the Club Prive issue. They see advantages to retaining the scheme as it is on an on going basis. They have agreed to provide accommodation to Club Prive members in line with the contract signed with the members and to further augment the scheme by developing loyalty programs that will provide the members with additional benefits like extending the accommodation to their existing five Resorts in South Africa and their 33 Resorts overseas. The price offered is so attractive to the extent that it covers the debenture part of the liability, which stands at R58m, in full and the Government will be able bank a substantial amount of money after deducting this liability from the purchase price. The Scheme will operate until 2010, however in terms of the draft sale agreement there will be no recourse to government should the preferred bidder fail to honor its obligations in terms of the scheme.

PROTEA MANAGEMENT CONTRACT
Aventura Resorts and Protea Hotels entered into this management contract in 1999 for a five-year term. This meant that the contract would run until 2004.
However with the cabinet decision to sell Aventura Resorts due to operational difficulties, this meant that the contract has had to be terminated prematurely. Protea Hotels was dully handed a six months notice of termination on 1 November 2002 as stipulated in the contract. This meant that by the end of April 2003 they had to relinquish their responsibilities in terms of the contract, which has dully taken place.

In terms of the termination conditions, Aventura has been levied with a penalty fee of R5,68m as damages for premature termination. However, the board of Aventura has appointed a firm of Accountants, Sizwe Nstaluba VSP, to confirm the calculation of the termination fee and incentive due to Protea Hotels from the previous year. Whilst, a draft report on the findings of the Accounting firm has been circulated to the board, the final report is due shortly. The final report will determine the course of action to be taken in the negotiations between Aventura and Protea.

AVENTURA EMPLOYEES
In line government's objectives on the restructuring of state assets, the retention of employees for a minimum period of three years has been a condition for all bidders to comply with and indeed we have received that commitment on the part of the preferred bidder, Forever Siyonwaba.

However, this does not mean in anyway that after three-year period employees would automatically be retrenched. The Labour Relations Act would apply and proper consultation would take place. The preferred bidder has committed about R50m to improve the Resorts from the current sta~e that they are in. This may result in further jobs being created in the short to medium term.

EMPOWERMENT
The consortium shareholding is 70% owned by Forever Resorts South Africa ("Forever Resorts") and 30% owned by Siyonwaba Leisure ("Siyonwaba"). Siyonwaba is 100% Black owned. Forever Resorts is owned by Forever Resorts South Africa L.L.C., a U.S. limited liability company owned solely by Mr Rex Maughan. Forever Resorts is an international resorts operator with 33 Resorts worldwide, 5 of which are currently in South Africa. Siyonwaba is owned as follows:

Izinyoni Leisure consortium

The Research & Security Development Trust

Consortium of Black businessmen

   

20%

51%

29%

   


Izinyoni Consortium comprises of Izinyoni Investments and the Bakgatla Foundation, for the Bakgatla Tribe of over 500 000 subjects led by Kgosinyalala Pilane. The Research & Security Development Trust is a charitable trust that raised funds for skills development and education programs for the benefit of youth. The Siyonwaba Consortium is a new entrant to the hospitality industry Four out of six proposed Directors of Forever Resorts will be Black. The consortium of black businessman is led by Mr Leslie Mkhabela, an attorney with Mukhwevo Adekeye and Partners.

The Steering committee on Aventura has insisted that the preferred bidder provides a plan on how it will improve the empowerment shareholding over the years from the current proposed 30%.

DEBT WITH ABSA
The initial Absa debt was reduced by the sale of the first three Resorts. This sale realized some R23m. The balance of the overdraft debt was settled with the proceeds from the sale of the next group of four Resorts to be sold together with cash from the operations. An amount of R16,2m remains outstanding for the sale of Roodeplaats, however a deposit of R1,6m is currently sitting in our attorney's trust account and bank guarantees for the balance of R13,8m have been
received.

WINDING UP PROCESS
The sale of Aventura Resorts will take the form of the preferred bidder purchasing and taking over the assets and certain liabilities of Aventura Resorts (Pty) Ltd leaving Aventura Resorts to settle whatever outstanding liabilities there may be and the resulting cash will be transferred to National Treasury. Once this process has been undertaken, Aventura Resorts (Pty) Ltd will be voluntarily wound up and deregistered. This process should take approximately 3 months post the sale of all the Resorts, which will be finalized on 30 June 2003.

 

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