hollywood billionaire

Chapter 449 Snowball

"To be honest, this is the outcome they set themselves up for from the beginning."

Madison shrugged and said so.

"If a person buys five villas in eight years, you will call him crazy. But if a company buys 50 hotels in eight years, you will just call it a 'future unicorn'... Hey, I have a question, where do they get so much money?"

"Financial institutions should raise funds," Xu Yiru guessed. "There is no better way."

"I may not be an expert in the financial industry, but even I know that it is unlikely that Marana can come up with enough money to acquire another 54 hotels in eight years with only four hotels as a foundation. Even if they mortgage a hotel for each one they buy, I think... well, I don't know if this formula is mathematically valid, but judging from my intuition, it should be unlikely, right?"

"This is feasible in some extreme cases, but I don't think this company from Marseille is an extreme case." Han Yi murmured, "This is a family business. CEO Olivier Caven began to concentrate on developing this hotel management company after selling his own accounting firm. They are not from a wealthy family, nor do they have any political background worthy of praise - at least their surname is not prominent in France."

"And they haven't attracted the attention of any large investment company." Xiaoru kept flipping through the brochure, trying to figure out Marana's rise from the lines. "I didn't see that they had raised funds in the primary market, nor did I see any familiar names like Carlyle or Accor."

"I also noticed this when I was looking up information." Han Yi responded, "Generally speaking, if a hotel management company of Marana's size gets an investment from La Defense or Wall Street, they will definitely regard this investment institution as their closest and most worthy partner, and flaunt this golden sign in public, fearing that no one will know that they have a strong capital support behind them."

"So, where did they get such a large sum of money?" Madison asked again.

"I can't find it online, or in this brochure...oh."

Xu Yiru's fingertips, groping on the coated paper, suddenly stopped in front of a line of text.

In the section “Our History – Twenty Years of Reshaping the Hotel Industry” that introduces the company’s history in the brochure, there is a small chapter called “Working Tirelessly to Create Positive Impacts”. In the sixth paragraph, in an inconspicuous position, several key data are recorded.

"I think I may have an answer now...it seems the devil is really in the details." Xiaoru cleared his throat and read word by word, "'Malana has 1300 employees across France and is the proud and warm home of about 5500 private investors and 135 companies.'"

"Oh my God," Madison blinked in disbelief and shouted, "Ponzi scheme!"

"This number is too large." Han Yi was also very surprised. "What is the total asset value of the Maranatha Hotel that it has disclosed so far?"

"9.25 million euros, that's what it says in the booklet."

"So let's do a rough calculation and give them some leeway. Assuming they provide 30% of their own funds and the remaining 70% is obtained through investment...then these 5500 private investors and 135 companies have contributed at least 6.48 million euros to Maran's acquisition plan."

Han Yi turned on the screen of his mobile phone, opened the calculator, and started typing on it.

"Then the average investment amount of each investor is... around 11.5 euros, and the average share is about 0.012%. I don't think many people would be willing to invest six figures just to hold such a small share of a private company. Therefore, a more reasonable guess is that a small number of individual investors and institutional investors did invest together with Maranatha to jointly hold hotel properties and management rights, while more people should have purchased Maranatha's corporate bonds or directly provided funds in the form of loans. Some charge interest according to a fixed number of years, and some..."

"Just agree on the capital return rate and repay the money according to the deadline." Xu Yiru completed the second half of Han Yi's unspoken sentence.

"This is why they are in trouble." Han Yi exhaled. "In order for this game to go smoothly, they have to keep bringing in investors to keep the snowball rolling so that they can keep adding hotels to their portfolio until the income they get from operating their business is enough to pay the interest on these loans."

“But they’re in trouble. There are only a limited number of good properties for sale, and even if they raise the money, they don’t have enough to buy. Also, if I’m right, the Charlie Hebdo incident did have a significant negative impact on the overall revenue of the French hotel industry, didn’t it?”

"It wasn't just Charlie Hebdo. After the massacre, France also suffered a series of other small and medium-sized terrorist attacks. That caused many potential tourists to temporarily cancel their plans to go to Paris, and the tourism and hotel industries were hit hard. I guess Olivier Caven originally thought that this was just a short-term negative impact and that the number of tourists in France would rebound quickly, so he gritted his teeth and scraped together more than 300 million yuan, wanting to try his best to acquire high-quality assets, and then make a fortune when the market picks up, whether he continues to hold on to them or resells them."

Han Yi analyzed carefully.

"But I didn't expect that, although France is still the world's largest tourism market, the data in the first half of 2015 was still much lower than the peak period at the end of 2014. What's more fatal is that in November last year, several terrorist attacks occurred in Paris and surrounding provinces, casting a shadow over the hotel industry that had just recovered... I searched here and found a report from the New York Times. It is said that the number of tourists will not return to the level at the end of 11 until April next year."

"So they can't make much money from the newly purchased hotels, and they may even be losing money now. They can't sell the properties directly because prices are still falling, and they won't show a trend of recovery until the tourism industry fully recovers." Even if it wasn't what happened to her, Xiaoru still had goose bumps on her arms. "They must have provided a high return on investment for the 3.6 ​​million euros they borrowed. In order to obtain this money in such a short time, they had to pay a high price... and this became the last straw that broke the camel's back."

"I found another report related to this acquisition from Reuters... Oh, this situation is terrible." Han Yi sighed softly, "'In order to finance the project, Marana obtained 25% of the funds from private investors. Each investor provided cash ranging from 10 euros to 1000 million euros. The remaining 75% of the funds came from loans funded by foreign funds and 5-year bonds.'"

"It means..." Xu Yiru opened her mouth, not knowing what to say, "Mara has no money to complete this acquisition. All the funds they raised were borrowed. Most of them came from strong institutional investors who had no room for maneuver."

As soon as these words were spoken, everyone at the table fell silent.

"So if your calculations are correct..." After a long while, Madison, who was hesitant to speak, finally spoke again, "In order to obtain these properties, you must first save this company and inject at least...how many billion euros in cash?"

"6.48 million euros." Han Yi paused and continued, "Actually... it can't be calculated that way. I can completely not invest in Mara and directly buy a few of the best assets from them to solve their urgent needs."

“But in order to make this deal possible, you have to get all the other shareholders of these assets to agree to the sale, right?” Xiaoru asked. “In addition, Marana has to convince all of their investors that these assets being liquidated are for the better development of the company, rather than a last-minute desperate attempt.”

"yes……"

"How likely do you think it is that everyone will agree with Maranatha to liquidate his assets?" "Almost none." Han Yi thought for a moment and answered bluntly, "If I were an investor or a creditor, and saw Maranatha selling off the property he just bought a year ago, I would definitely be suspicious and try every possible way to withdraw my funds."

"And this will make Maranhe go bankrupt faster. Therefore, they will definitely not agree to sell only these assets separately, such as the Hotel California, which is just a stone's throw away from the Champs Elysées, the Hotel Pont Royal in Saint-Germain-des-Prés, the Hotel Royal Saint-Honoré near Place Vendôme, the old luxury five-star Hotel du Roy in Paris, the signature Pic Blanc Resort in Alpe d'Huez ski resort, and the Hotel Birus just across the street from the 'I Love Nice' sign... These high-quality assets that can provide stable positive cash flow must be packaged and sold together with the group's debts." Xu Yiru folded his arms and made calculations.

"In addition to the debt, there are also renovation costs. Don't forget that." Han Yi laughed helplessly. "Under such circumstances, Marana launched a 100 million euro hotel renovation plan this year. For the overall renovation of the Hotel du Roy alone, he signed a contract with a total amount of more than 50 million euros."

"How can such a stupid team nurture a company of this scale?" Madison supported his cheek with one hand and sighed.

"The only lesson mankind has learned from history is that mankind cannot learn any lessons from history." Han Yi quoted Heigl's famous saying in his answer, "Everyone thinks they can control the snowball, because when they first start to snowball, it doesn't look so terrible."

"So now, what are you going to do?" Xu Yiru asked, "Are you going to give up this project too?"

"I will not touch the disaster called Maranatha, that's for sure. It's too religious and... too optimistic."

Maranatha is an Aramaic word that appears only once in the New Testament. Early Christians who were persecuted and hunted under Roman rule used this phrase to encourage each other.

It means—the Lord will come.

Putting all hopes on the savior, perhaps the fate of the Maranatha Hotel Group was doomed from the moment they chose this name.

"I can't save a company that is already terminally ill, and I don't want to spend so much money to try to save it. But maybe after entering the bankruptcy receivership process, those investors who are eager to see their funds returned and at least part of their principal will be happy to see me enter the market to acquire some assets."

"So when they're left lying dead in the wilderness, you circle around them like a vulture, trying to grab a piece of meat for yourself." Madison's summary is very insightful.

"That's one way to put it." Han Yi curled his lips. As long as the assets in Paris and Nice were of high quality and could bring him strong positive emotional feedback, he didn't care whether he was doing the same work as a vulture.

“I mean, it’s definitely a way to invest, but…”

"It's okay, Maddie, just say whatever you want to say."

“I just think there must be other better projects waiting for you in this world.”

Madison glanced at Xu Yiru who was listening attentively, then looked at Zhao Youzhen who was still distracted even though he had his phone upside down on the table and was not looking at anything, and spoke slowly.

“I don’t know much about investing, as I didn’t start saving money until recently. But I’m trying to manage my money responsibly, and I’ve been learning a lot over time. The more I learn, the more I realize there are similarities between making an investment and making a record.”

"You see, as artists, we can create our own songs, which is equivalent to establishing our own company without external investment. Some people are suitable for this because they have superb creative talent, rich professional knowledge, and keen market sense. The songs or 'companies' created by these people have a high probability of success."

"But there are also people, like me, who are still in the learning stage. If I were to rashly create a 'company' myself, it would most likely fail. So, what I can do now is to find as many potential companies as possible to 'invest' in - that is, to collect some good songs to sing for myself. Can you follow my analogy?"

"This analogy is not difficult to follow." Han Yi smiled.

"That's good... Well, anyway, I can't find any good songs on my own because I don't know many creators and I don't have enough resources. So, I have to sign a contract with a label and use the power of their A&R department to help me find the singles with the most commercial potential on the market and put them on the album." Madison stroked her chest with one hand, "This is the most normal process, right? We all know it."

"Yes." Han Yi nodded.

"Now, you are me. The good songs you are looking for are those high-quality investment projects out there, and A&R is this, the Carlyle Group." Madison clenched his hands in front of his chest into fists, "Obviously, your A&R is not doing a good job. I believe that the songs they bring to you are not even what they would listen to themselves."

"Banyan Tree, Rixos, Maranatha... Which of these three projects is Carlyle interested in?"

"Babe, I know you're not interested in making a whole... let's just say, a pop album, because you're busy writing another rock-style album."

Madison gathered her messy hair behind her ears, looked at Han Yi seriously, and gave him advice word by word.

"But in order to make a great album, maybe you should at least consider assembling a great A&R team so you don't fill up those 45 minutes with a bunch of crap and nonsense."

"If this analogy is starting to get a little abstract, let me put it more bluntly..."

"Yi, don't seek help from these investment groups anymore. They can help you complete the tasks you assign, but they will never take the trouble to recommend you high-quality investment opportunities. If there are good projects, these people will definitely hold them firmly in their hands. Just like Supreme, at best you can only get the right to participate and hold a small share in the investment fund they founded, that's all."

“If you want to go further, you need to build a team that is dedicated to helping you find opportunities in the market.”

"The whole team, not just Jordan or Antoine, one or two people."

(End of this chapter)