This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

THE receivers and managers (R&M) of Andaman Resorts Sdn Bhd (ARSB) — which owns The Andaman, a Luxury Collection Hotel, in Langkawi, Kedah — have placed the five-star international class beach hotel up for sale.

The latest development comes on the heels of an unsuccessful attempt by Landmarks Bhd to get an injunction to stop the sale by the R&M. Landmarks wholly owns ARSB.

While the R&M have proceeded to invite interested parties to submit their offers following the court’s ruling, ARSB and Landmarks have filed an appeal at the Court of Appeal.

ARSB was placed under receivership in July after OCBC Bank (M) Bhd appointed Deloitte Restructuring Services PLT (the R&M) as the joint and several receivers and managers over the assets and undertakings of ARSB saying that “all timelines stand lapsed and/or have been breached and OCBC asserts that they are not in any position to agree to any additional time”.

The advertisement placed by Deloitte last week shows that the charged assets that would be up for sale include a 29.9- acre parcel of land with 64 years remaining on the lease and the buildings sited on the land.

The sale would also include land rights for the spa, measuring 2.86 acres; land rights for staff quarters, measuring 15.9 acres; and equipment and motor vehicles. The charged assets are being sold on an “as is where is” basis. Interested parties have to submit their offers by Dec 1, 2023.

Based on advertisements for land sale in Langkawi, the Andaman assets may be able to fetch between RM100 million and RM120 million.

A real estate agent contacted by The Edge believes that interested parties will be willing to pay a premium for the land because it is in a “great location”. It is noteworthy that Langkawi hotels have the highest average room rates in the country.

According to court documents sighted by The Edge, in 2018, ARSB took a RM150 million loan from OCBC to refinance its existing loan, for Landmarks’ group investment and for working capital of ARSB. As security for the loan, ARSB charged the hotel land, cash deposits, lease agreement ARSB had entered into with Teluk Datai Resort Sdn Bhd (for the spa and staff accommodation assets) as well as assigned its fire and perils insurance policy.

ARSB, however, fell into receivership after the hotel went through a few tough years. In 2020, the hotel’s operations were affected by the Covid-19 pandemic. This resulted in its revenue and gross operating profit (GOP) declining to RM28.66 million and RM623,247 respectively from a peak of RM78.87 million and RM30.55 million in 2018.

Luck was also not on its side — just as the movement controls were being relaxed, on Dec 12, 2021, The Andaman caught fire. It had to cease operations as the fire had affected 80% of the hotel. This incident also led to ARSB becoming an affected listed issuer. Bursa Malaysia has given Landmarks until Jan 28, 2024 to submit its regularisation plan.

Because ARSB was the main revenue contributor for Landmarks, the latter made a concerted effort to redevelop the property.

In its annual report released in April 2023, Landmarks said that it had already received RM52 million in fire insurance claims. It was also negotiating for a balance claim estimated at RM58 million, which was contingent upon the redevelopment of The Andaman. “In the event that the insurance proceeds are not used for redevelopment of The Andaman, the allowable claim will be substantially lower,” the company said.

Landmarks added that it was in discussions with potential investors to invest in the redevelopment of The Andaman and to provide requisite funding to repay the term loan and interest amounts. In its quarterly results announcement in August, Landmarks reiterated that it was engaged in ongoing discussions.

Court documents show that in June, ARSB and Thailand’s Minor Hotel Group Company Ltd (which operates the Anantara and Avani hotel chain) were engaged in the due diligence process. These discussions, however, fell through and Landmarks said that it would instead be seeking funding from a private equity firm.

However, on July 6, OCBC appointed the R&M after Landmarks’ repeated breaches of promised timelines. OCBC had granted a total of 11 extensions to Landmarks.

Subsequently, on July 14, ARSB, Landmarks and Zakaria Abdul Halim, who sits as a director on the board of both companies, filed a case against OCBC and the R&M. On the same date, it filed a notice for an ex-parte interim injunction.

In the statement of claim, the plaintiffs said they had deposited RM52 million from the insurance claim into the debt service reserve account (DSRA). The plaintiffs added that OCBC rejected ARSB’s request to use the money in the DSRA and thereby effectively engineered an event of default. OCBC, however, said that use of the money in the DSRA is solely at its discretion.

The plaintiffs’ claims for relief include — a declaration that OCBC had wrongfully terminated the facilities and incorrectly exercised its discretion by not using the funds in the DSRA, which subsequently led to an event of default; and to stop OCBC from instructing the R&M over any of the assets, restrain it from selling/disposing of the land and to order its appointment of the R&M null and void.

OCBC, in its written submission filed on July 21, opposed the notice of application for injunctive relief as it said that the plaintiff’s affidavits are not a wholly accurate account of all the matters and that the bank is entitled to call an event of default, at its sole and absolute discretion.

OCBC also said that ARSB had not demonstrated an ability to undertake the “rebuilding efforts” and that there has not been any “concrete resuscitation plan in place after the lapse of two-and-a-half years” and the “suggestion that ARSB would stand to lose their chance to rebuild is clearly no longer rooted in reality”. As at end-July, the sum owed to OCBC was RM87 million.

On Oct 20, the High Court dismissed the plaintiff’s ex-parte interim injunction.

Court documents show that the plaintiffs were dissatisfied with the decision made by Judge Adlin Abdul Majid given at the High Court on Oct 20 in dismissing the injunction application. Thus, on Oct 27, the plaintiffs filed an appeal at the Court of Appeal against the High Court’s decision to dismiss the application for an injunction.

This is a second significant five-star property in Langkawi that has come under receivership in six years. In 2018, Tanjung Rhu Land Sdn Bhd — a company linked to Tan Sri Tajudin Ramli that owned the 126-room Tanjung Rhu Resort — went into receivership. The hotel was subsequently bought by Tan Sri Syed Mokhtar Albukhary’s Tradewinds Corp Bhd. 

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