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4 Oct, 2019

Court clears way for Thai owners to terminate Peninsula Bangkok management contract

Bangkok – A Thai court has paved the way for the owners of the luxury riverside Peninsula Bangkok hotel to terminate the management contract on the basis of having delivered no returns to the Thai business family over the last 20 years. However, Hongkong and Shanghai Hotels, the operators and also equity holders, says it will appeal the decision.

In a ruling on 10 Sept 2019, the Thonburi Civil Court overturned a move led by the Hongkong and Shanghai Hotels shareholders to block a board resolution initiated by the Thai shareholders (the Phataraprasit family) to terminate the hotel management agreement made with the Peninsula group.

The lawsuit was filed by Mr. Praphan Phataraprasit and Mr. Prasong Phataraprasit, both brothers and members of one of Thailand’s foremost business families, against HSH-Siam Chaophraya Holdings Company Limited (HSH-SCH), a Thai subsidiary of The Hongkong and Shanghai Hotels Ltd. and the owner of the Peninsula Bangkok hotel on the basis of “a serious and material conflict of interest that is disadvantaging the Phataraprasit family.”

The move to terminate Peninsula Bangkok’s hotel management agreement was blocked in the boardroom by representatives of the Hong Kong and Shanghai Hotels.

The Phatraprasit family has ownership interests in one of Thailand’s most popular retail corporations, The Mall Group, which includes iconic Bangkok shopping malls such as Emporium, Emquartier and Siam Paragon. It also has interests in other fruit and vegetable markets in Bangkok.

Between Jan-Aug 2019, the hotel reported an average occupancy of 70%, average room rate of 7,050 baht and a RevPAR of 4,950 baht. The top source markets are China, South Korea and Japan.

Reacting to the decision, Mr. Pradit Phatraprasit, the eldest brother who heads the owning company of the Phataraprasit family’s investments, said, “In the last 20 years, there has not been a single year in which the Peninsula hotel group’s management company has run the hotel profitably for its shareholders. We believe it reasonable for their management contract to be terminated, and the court has agreed that we can do so.”

Mr Pradit Phatraprasit

“Regretfully, terminating the management contract through normal boardroom discussion was impossible because they are also a 50% shareholder of the hotel with a voting majority on the board. They prevent action from being taken against their own management company, insisting that it is not underperforming, and thereby securing an arrangement that has delivered to their management company and its affiliates handsome fees and other benefits amounting to tens of millions of dollars, but no profits to the hotel’s shareholders,” he said.

“The Hongkong and Shanghai Hotels’ Peninsula hotel group has a dual position as the hotel operator as well as being the controlling shareholder responsible for holding the operator accountable for its performance,” Mr. Pradit said.

The Peninsula Bangkok was opened in 1998 directly opposite Bangkok’s legendary Mandarin Oriental hotel, on the Chao Phraya River. The 37-floor, riverside establishment has 370 guestrooms and suites, and four restaurants.

Mr. Pradit, a former Deputy Finance Minister in the Thai government in 2008, added, “The Peninsula sits on one of the most expensive riverside land plots in this city but, very curiously, it cannot yield a dividend for its shareholders. We have been very patient with the management company belonging to our partners from Hongkong. However, the time has come for another management company to run this hotel.”
He said the dispute had been ongoing for several years.

“Our venture with The Hongkong and Shanghai Hotels and the Peninsula hotel group has been a severe disappointment for my family, and all the more so because we were cautioned by friends about entering the venture after the Peninsula group had exited their previous hotel venture in Thailand. This makes it their second conflict with a partner in Thailand.”

Hongkong and Shanghai Hotels Limited has 50% interest of The Peninsula Bangkok through a wholly owned subsidiary, and has been operating the hotel since 1998. The Thonburi Civil Court ruled that the subsidiary should not have been allowed to vote at the shareholder meeting of the joint venture company held on 26 January 2019 on matters regarding the termination of hotel management agreement.

Asked to comment, Lynne Mulholland, Director, Group Corporate Affairs of Hongkong and Shanghai Hotels, responded in an email, “We object to the verdict and will appeal. The hotel management agreement is a material part of our joint venture and has been acknowledged, accepted and agreed by both partners for 30 years and remains valid and legally binding and enforceable on The Peninsula Bangkok. The daily operations of The Peninsula Bangkok are currently not affected.”

A follow up email asking for comment on the allegation of no return on investment to the shareholders went unresponded.