In an enforcement action initiated by Habib Bank Limited, Male, the bank is proceeding to sell and transfer the leasehold rights (head leasehold rights) over the island of Maagaa, in North Ari Atoll.
This island may not be confused with Maagau property in Dhaalu Atoll, which is currently operating as Baglioni Resort Maldives.
The enforcement action in respect of Maagaa is sanctioned by the Civil Court via case number 4332/Cv-C/2018.
The island is reported to be small in size measuring some 2.8h in land area. What adds value to the property seems to be a combination of four factors: its modest size, location in Ari Atoll, pristine beaches and the large lagoon surrounding it.
Maagaa is within the established and reputed Ari Zone, the second oldest tourism zone sitting just next to the prime Male Zone.
It is within our knowledge that the island used to be a small picnic island. A change in government policy allowed similarly placed islands to be converted into resorts.
The policy change instituted in 2010 or so was implemented by asking the investor (usually the picnic island lessee) to sign a joint venture agreement with the Ministry of Finance; creating a joint venture company under that agreement; and paying a conversion fee to convert the island into a resort island. A tourism lease agreement is later signed between the JV company and the Ministry of Tourism granting the leasehold rights to the earlier. That seals the process.
In the instant case of Maagaa, it is no more a picnic island. In pursuance of the relevant policy, a joint venture agreement was signed between Maldives Government represented by the Ministry of Finance and a company called Ellaidhoo Investment Private Limited. The joint venture company created out of that joint venture agreement was Big Stone Investment Private Limited. The joint venture company has 10% of its shares held by the Maldives Government and the remaining 90% of the shares are held by the investor, Ellaidhoo Investment Private Limited.
A tourism lease agreement (head lease agreement) was signed in or around June 2014. A conversion fee was also levied.
According to the public announcement made by Habib Bank Male, the island lease expires in 2064 giving an unused lease period of 44 more years. A good amount of development is reported to have been undertaken. However, it is also understood that serious development work had ceased for more than a year now.
We understand that the potential for the island is appreciated by the fact that a well-positioned international hotel operator had expressed interest in managing the property once its development is completed.
Habib Bank Male is asking for at least US$4.25m and has set that amount as the reserve price. The bid closes on 17 December 2020. A non-refundable deposit of US$5,000 is to be paid to the bank before submission of bids.
According to instructions to bidders, local Maldivians, businesses registered in the Maldives, and foreign investment companies registered in the Maldives alone qualify to submit bids. This means that a foreign national (a potential entrant) or overseas company (a potential registrant) is currently excluded from participation in the bid.
The bid opening is scheduled for 20 December 2020. The sole criterion that determines the success of the bid is the highest price.
According to the bank, the successful bidder would be required to pay 10% of the bid value by 3 January 2021 and the remaining amount by 3 February 2021.
If the successful bidder runs into payment difficulties, the bid would be transmitted to next highest bidder, and there may be no re-bidding.
The bank has made it clear that the property is being sold on an ‘as is where is’ basis and an inspection could be arranged for the successful bidder at the latter’s expense.
In addition to the information contained in the instructions to bidders, an interested bidder may find the following elements useful:
If there exist any unpaid amounts in the payment of the conversion fee, the bank would have to ensure that the amount is paid down as dues owed to the government.
Lease transfer fee
Generally, a sum of US$100,000 is charged as an administrative fee by the Ministry of Tourism in transferring the leasehold of an island that is not operational. However, this fee is not applicable in a foreclosure.
The head lease agreement would usually allow a construction period of 24-36 months to complete the development. The lease agreement may invite liquidated damages on failure to complete the property within the construction period.
Alternatively, a fee may be charged to extend and re-validate the construction period.
The Ministry of Tourism has a singular set of regulations on the subject of construction period extension.
Before the transfer of leasehold is finalized, the bank would have to ensure that all government dues are paid after discharging its own debt.
At present, there is movement to amend the current tourism law.
One of the proposed amendments is on lease rent. The amendment divides the country into 4 zones by geography, and tourism properties within each zone are further divided into 3 categories by land area.
As we understand, Ari Zone will remain largely unaffected by the imminent lease rent changes expected in respect of resort properties. Ari Zone even in the revised schedule on lease rent is sticking to US$8 per square meter.
There is an option under the current tourism law to buy back the government held shares and bring the company under the 100% control of the investor. However, the amending bill dealing with changes to the tourism law is to take away that provision in its entirety and shut the door on buy back of government held shares in JV companies.
Note: We do not represent either the property or the bank. Our interest is in sharing the development with the readers of this blog.
Photo: Courtesy R