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BANGKOK: Privately-owned hotel investment company Red Planet Hotels plans to raise US$100 million (RM310.46 million) from its shareholders to help finance a planned foray into China's competitive budget hotel sector.
Tim Hansing, chief executive of the Bangkok-based group, said the fresh financing would be completed by the first quarter of next year and up to 90% of the money raised from shareholders would be invested on the mainland.
As an investment holding company, Red Planet builds hotels that are operated under a franchise agreement with Tune Hotels, the hospitality arm of the Tune Group, the private investment company established by Tan Sri Tony Fernandes, who is also the group chief executive director of budget airline AirAsia.
Hansing said the partners had planned to enter the mainland market a year ago but the entry was delayed because their expansion in Asia last year was faster than expected. Red Planet has more than 3,000 rooms in 19 hotels under construction in Thailand, the Philippines and Indonesia.
"The milestone of 3,000 rooms under development comes exactly 12 months after the investment company passed the 1,000-room mark, posting growth of 200% over the last year," he said. "Now, we can focus on China this year."
Adopting the budget airline concept, Tune offers limited-service hotel accommodation and employs a self-service online booking system, encouraging guests to book early for lower prices. Its experience in Asia laid the foundation for an expansion into the mainland market to compete with a number of larger-scale budget hotel chains, Hansing said.
The development of budget hotels has accelerated in recent years, with the number of rooms increasing from 3,336 in 2000 to 544,210 in 2010, according to Shanghai Inntie Hotel Management Consulting. Growth was due to the rapid development of the mainland economy and the rise in disposable income, according to the China Hotel Association.
The budget hotel industry is dominated by the top-10 players, who together own about two-thirds of the total number of budget hotels on the mainland, according to Inntie. Home Inns & Hotels Management is the biggest branded budget hotel chain in terms of number of rooms, with a 16.58% market share, followed by 7 Days Inn (10.53%), Jin Jiang (9.93%), and Hanting Inn (9.23%), Inntie says.
Home Inns' market share will grow further following the US$470 million acquisition of Motel 168, and its 281 hotels comprising 45,669 rooms. It expects the deal to be finalised in the fourth quarter of this year.
In the first quarter of this year, about two-thirds of the budget hotels on the mainland charged average room rates equivalent to, or below, 200 yuan (RM97.32) a night. But Hansing was dismissive of the overall quality of the hotels. "I have been there. They are awful, They may be branded, but [they are] still awful."
Positive forecasts of continued rapid growth in tourist and business travel on the mainland will see the company building budget hotels in second- and third-tier cities such as Chongqing, Dalian and Kunming, and Hansing expects the first hotel deal will be announced by the end of the first or second quarter of next year. With hotel investment, cash flow was very important, he said.
The company is looking for an investment return of 20% on capital deployed.
In view of the growing hospitality industry, design firm Blink Design Group also plans to expand into China, opening its first mainland office in Shanghai. The company plans a rapid expansion into the high-end resort sectors. It has provided designs for Conrad and Double Tree properties in Sanya, with work in progress on Regent Sanya, the Westin, and Le Meridien in Xishuangbanna and Marriott Xiangshui Bay. The company has designed hotels, resorts, restaurants, clubs, spas and homes for global brands. — SCMP
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