Xiamen hotel may be next in takeover spree

HAS CDL Hotels International's spending spree come to a halt with its $690 million purchase of the Regent of Kuala Lumpur? Much depends on the final structure of the deal in Malaysia and what other value-for-money hotel packages CDL discovers around the world.

To gain approval from the Foreign Investment Committee of Malaysia for a deal in which it buys Malaysian land, bricks and mortar, CDL needs to find at least one Malaysian partner.

The terms of this still-assembling partnership will determine how much money CDL needs to put down to close the deal.

In March last year, Hongkong-listed CDL tapped the market for funds, raising $686 million in a five-for-eight rights issue that took its war chest to $1 billion in cash.

Since then the company has bought into a New Zealand investment vehicle that is looking to invest in the antipodean hotel and resort sector; bought the Gloucester Hotel in London for $810 million; and with Asean Resources Holdings, bought a 75 per cent stake in Hongkong's Hotel Nikko for $400 million in cash and a commitment to shoulder about $750 million in debt.

The series of deals leaves CDL with about $240 million in the war chest.

The plan to pay cash for half of a 60 per cent stake in the Regent of Kuala Lumpur would use up most of remaining kitty and might put the company into consolidation mode.

But company officials say CDL is in a good position to borrow more and is not afraid to do so. They say the group is still on the look-out for good (which the company has defined as meaning high-yielding) growth opportunities.

Mr Galvin Patrick, research director at Barclays de Zoete Wedd (Asia), regards CDL's recent purchases as ''intelligent moves''.

Mr Patrick estimates the company's net asset value per share to be $3.80, putting its Thursday close of $2.15 at a 76.7 per cent discount to net assets.

Where will CDL expand next? CDL Hotels New Zealand hasn't made a move since buying control of Euro-national Corp last May for $56 million, despite the group's stated intention to use the subsidiary as a vehicle to invest in hotels and tourism in Australia and New Zealand.

Both economies have hit hard times and offer a plethora of properties, but have yet to throw up one that fits CDL's high-yield criterion.

Closer to home, there are still plenty of distress sales in China's hotel sector. Over-built and under-occupied in several areas, China hotels are going for prices that may amount to only half their replacement costs.

The most likely scenario for CDL's expansion in China may be in Xiamen. There the Kwek family's Hong Leong group - which ultimately controls CDL - appears to be prospering with its 70 per cent-owned Holiday Inn Crown Plaza. The 370-room hotel might find its way into the CDL group this year.