Vientiane, Laos may not be strongly associated with the world of big business but it has an interesting story unfolding that contains a strong Malaysian twist. It is a saga that the burgeoning business community of Vientiane as well as the top Laotian and Malaysian government officials are familiar with.
At the heart of the story lies a low-profile Malaysian businessman Cheok Tiam Cheng, who had since 2003, taken on a pioneering project in Vientiane to build the city's first five-star hotel to help it host the Asean summit in 2004.
The Don Chan Palace hotel, with its 240 rooms, is an imposing sight in Vientiane along the Mekong river bank and until today, it holds the record of being the tallest building in the city.
Cheok and his hotel were the toast of the town in the early years after it was built. Battling against the odds, Cheok and his team had built the hotel in a record time of nine months for the summit, Besides not having enough skilled workers, he had to deal with the settlers on the land as well as the unrelenting torrential rain during the construction period.
The hotel was sanctioned by the governments of Malaysia and Laos as the latter was trying to pick itself up after a lengthy civil war that paralysed the country's progress. The Don Chan Palace would serve Laos' needs as a venue to host important conferences and to house VIPs.
It has hosted dignitaries from the prime ministers of Malaysia and other countries in the region. Even Condoleezza Rice, the former United States Secretary of State, had checked in before.
Hotel may have been sold
Today, Cheok, 60, is facing the possibility of the hotel being taken away from him. Cheok is fighting to keep his creditor, namely a large Malaysian bank, from selling the hotel to recoup its loan.
In Vientiane, there are rumours that the hotel has already been sold to China CAMC Engineering Co Ltd (CAMCE) and that a joint venture is being set up between CAMCE and another Malaysian party to jointly own the hotel and its adjoining land.
The interest of foreign parties in the hotel is not surprising, as it has a hidden asset. As part of the deal with the Laotian government dating back to a 2003 master agreement, Cheok has the right to develop up to 6km of the adjoining land along the Mekong river.
In the original loan agreement, the plan was for Cheok to also build a shopping complex on the adjoining land to be leased out or sold and the proceeds used to repay the loan.
According to Cheok there is an understanding that the bank would help finance the development of the surrounding properties.
However, that plan did not work out as expected. “There was an increase in the cost of construction of the hotel as it needed to meet a certain deadline and there were other problems including the weather, lack of skilled workers and difficult terrains. As a result, the monies from the loan that were meant for the shopping complex was drawn down to complete the construction of the hotel.
This was to meet the Laotion government's needs of having the hotel above all.”
Cheok had attempted to go ahead with the shopping complex but he had only enough money for the foundation work. The bank has declined to provide him more financing for the rest of the project, leaving him in a catch-22 situation.
Cheok tried another plan: building villas and bungalows on the adjoining land as a means to repay the loan. However, that move was also in vain. “The developers who joined us in the project could not get the bank's consent to redeem and secure the sale of the land,” says the embittered Cheok.
Valuation issues
The bank had granted Cheok a loan of RM28mil for the project in 2003, which Cheok has been unable to service. This is the basis of the bank seeking to sell the hotel and its adjoining land. The bank is claiming RM35mil from Cheok, including outstanding interest. Cheok says he has made a repayment of up to US$5mil (RM15.5mil) but that no statement of account has been provided by the bank.
Cheok says he is not disputing the debt but he against the manner in which the debt is being claimed by the bank.
“The bank hasn't notified me of any sale and yet the whole town is telling me that the hotel has been sold. And if it has been sold, there is the question of price. I have a valuation that shows that the hotel and adjoining land is worth much more than the outstanding loan amount. Hence the bank should give me back the surplus but there's no mention of that,” he says.
Cheok produced a valuation report done by the International Commercial Bank Lao Ltd, dated 29 March 2010, that valued the hotel at US$23mil and the adjoining land that Cheok is entitled to at US$48mil.
“This valuation also took into account the amount of money spent by us to put up the hotel in record time and to move millions of tonnes of earthwork as the land was initially not suitable for construction as it was swampy and filled with gullies and ravines,” Cheok says.
He adds: “I've put my blood, sweat and tears into this hotel. I gave up my property in Malaysia as collateral for the loan and now I stand to lose it all in an unfair manner.”
Cheok counter sues for US$2bil
When StarBizWeek contacted the Malaysian bank concerned, its CEO, in an e-mail reply, said he could not comment on the matter. “In compliance with the secrecy provision under the Banking and Financial Institutions Act (Bafia) 1989, we are not in a position to divulge any information in regard to any of our borrowers or accounts to any third party.”
He added: “As a custodian of public funds, the bank is duty-bound to ensure that we protect the interests of our shareholders at all times. Should there be any default in our loans, we shall do whatever necessary within the ambit of the legal framework to ensure that monies loaned are recovered to enable other Malaysian businesses to be given access to such funds.”
The bank has also initiated legal action in Malaysia to claim its monies from Cheok.
Cheok has filed a defence against that action as well as a counter suit against the bank at a whopping sum of more than US$2bil (RM6.2bil).
This is on the grounds of general damages, disruption and loss of business of the hotel and opportunity of developing the shopping complex, as well as on the value of the adjoining land.
Cheok's lawyers also say they have an option to refer the matter to arbitration.
Cheok's venture into Laos could be traced to 2000 when he went to Cambodia to look for business opportunities. While in Cambodia, the ambassadors of Malaysia and Laos had suggested to Cheok that he invested in Laos and a meeting was quickly arranged between him and the then Loatian Prime Minister Bounyang Vorachit, who was visiting Cambodia.
After having completed the Don Chan Palace, Cheok said the Loatian government gave his company an electronic gaming licence as well as a banking licence. But the operational permits for these businesses have yet to be issued to him in light of the current developments.
When Cheok first met up with Laotian government official in 2002, he had also inked agreements for a hydro-electric construction project, a hotel and casino in Pak Song, cattle farming, coffee and plantation development projects.
Cheok had started work on the Pak Song hotel and a casino but he faced the challenge of having to rid the land of undetonated World War 2 bombs and land mines a persistent problem in Laos which is the most heavily-bombed country in history.
In a tight spot
Through it all, government officials from Laos and Malaysia are keen to see the matter resolved. Laos will be hosting the Asean Euro Summit 2012 and the Don Chan Palace is expected to be the main venue of this event. But Cheok says he's in a tight spot as the Laotian government has requested him to refurbish the hotel in time for the conference.
“In good faith, we have offered to renovate the hotel at our own cost. But we have asked that in the event we lose the legal battle against the bank, it should pay us the amount that we spent on the renovations. But the bank has refused to entertain any of these proposals and have only offered to buy back the hotel at the current market price and we should proceed with the renovations. That is ridiculous,” he said.
Ridiculous or not, Cheok, the Don Chan Palace and the bank continue to be the talk of town in Vientiane today and it will be interesting to see how the matter will be resolved if at all.
By The Star
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