stella tourism empire in danger of collapse

Article in Gold Coast Bulletin

Stella tourism empire in danger of collapse

April 23rd, 2009

THE Stella tourism empire, which owns the Harvey World Travel chain and manages one in five Gold Coast holiday apartments, is in danger of collapse.

Private equity firm CVC Asia Pacific and banking giant UBS are understood to have lost up to $1 billion on Stella after buying two-thirds of the struggling giant last year from the now-collapsed high-risk Gold Coast financier MFS, The Australian reported today .

Under that deal, UBS and CVC Asia Pacific pumped about $1.3billion into Stella, which controls more than 21,000 hotel rooms and 1200 travel agencies globally. That stake is now worth between $250 million and $350million, experts say.

The Australian understands accountants close to UBS have recommended the bank place Stella in receivership, or sell assets immediately, in a bid to stem further losses. If a receiver was appointed, it would be high enough in the corporate structure to allow the operating travel companies to continue to trade.

Meanwhile the former chairman and one of the largest shareholders of Octaviar has called for greater transparency from Stella Group over the sales of its assets.

In 2007-08, Stella delivered earnings before interest, tax, amortisation and depreciation of $17 million, less than one-tenth the figure forecast by MFS before its collapse a year earlier.

In recent months, UBS has been forced to extend its loans to Stella, and CVC has allowed the travel group to postpone a $25million loan repayment.

UBS declined to comment yesterday and CVC Asia Pacific did not return calls.

Stella's expansion into the British market, which represents half its assets, has proved most costly, with spending on travel and accommodation plunging amid the economic downturn.

Stella operates the Breakfree, Peppers and Mantra Hotels holiday accommodation brands across Australia. The group also operates about 1200 travel agencies through the Harvey World Travel, Travelscene and Gullivers Travel Group. Under the direction of its founders, former Gold Coast criminal lawyers Phil Adams and Michael King, MFS expanded into the travel sector from 2005 when it merged with "management rights" operator Breakfree.

That merger, which valued the Gold Coast-based Breakfree at about $300 million, was followed a year later by MFS's acquisition of Breakfree Gold Coast rival S8 in a cash and scrip deal worth about $700 million.

The Australian has more on Tourism giant Stella nears collapse.