Who’s paying for Iraq’s hotel renovations?

Last August, the government announced it was making available a total of US$ 300 mn to renovate six Baghdad hotels in preparation for the Arab League Summit. The six—the ISX-listed Palestine (HPAL), Babylon (HBAY), Baghdad (HBAG), Mansour (HMAN), and Ishtar Sheraton (HISH) hotels, and the unlisted Rashid Hotel—were to receive 75% of the new funding as interest-free loans, the remaining 25% as equity injections. (See my first post on this story here.)

While the Arab League Summit, originally scheduled for last month, was recently postponed to next year, the work on the hotels appears to have gone ahead as scheduled. In fact, most of it would presumably have to have been done by now to meet the original deadline.

That being the case, you would expect to see big increases on both sides of the hotels’ balance sheets. The value of their fixed assets should have gone up as a result of the renovations while debt and shareholders’ equity should have increased by a corresponding amount of loans and equity injections.

Strangely, however, this isn’t the case for HBAY, the only one of the five listed “Arab Summit plays” to have posted its first quarter financials so far. While the company could have received as much as US$ 50 mn from the government (if the US$ 300 mn were divided evenly among the six hotels), HBAY’s balance sheet actually shrank from IQD 1.43 bn (about US$ 1.2 mn) on 3/31/10 to IQD 1.37 bn on 9/30/10 to IQD 1.07 bn on 3/31/11. (These numbers are just a fraction of the company’s IQD 53 bn market cap, by the way.)

There’s also no sign of any capital injection—paid-in capital is the same on all three dates.

Passersby report seeing a banner outside the hotel announcing that the first phase of the renovations ended April 26. The second and final phase, it says, will be completed three months after that date. Apparently money is being spent. Is it a free gift from the government?

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