Investments in unconsolidated companies

9 Months Ended

Sep. 30, 2011

Investments in unconsolidated companies

Investments in unconsolidated companies

6.             Investments in unconsolidated companies

Investments represent equity interests of 50% or less in which OEH exerts significant influence but does not consolidate.  OEH does not have effective control of these unconsolidated companies and, therefore, accounts for these investments using the equity method. These investments include the rail and hotel joint venture operations in Peru, the Hotel Ritz, Madrid and Eastern and Oriental Express Ltd.

Summarized financial data for OEH’s unconsolidated companies are as follows:

	September 30, 2011	December 31, 2010
	$’000	$’000
Current assets	52,286	52,908
Property, plant and equipment, net	347,279	342,207
Other assets	4,670	4,695
Total assets	404,235	399,810
Current liabilities	155,004	165,416
Long-term debt	37,578	33,099
Other liabilities	105,619	91,123
Total shareholders’ equity	106,034	110,172
Total liabilities and shareholders’ equity	404,235	399,810

	Three months ended		Nine months ended
	September 30, 2011	September 30, 2010	September 30, 2011	September 30, 2010
	$‘000	$‘000	$‘000	$‘000
Revenue	38,527	32,689	102,983	79,424
Earnings from operations before net finance costs	9,501	6,673	18,131	16,029
Net earnings	4,244	3,123	5,749	5,872

Included in unconsolidated companies are OEH’s hotel and rail joint ventures in Peru, under which OEH and the other 50% participant must contribute equally any additional equity capital needed for the businesses.  If the other participant does not meet this obligation, OEH has the right to dilute the other participant and obtain a majority equity interest in the affected joint venture company.  OEH also has rights to purchase the other participant’s interests, exercisable in limited circumstances such as its bankruptcy.

The Company has guaranteed, through 2016, $9,405,000 of the debt obligations of the rail joint venture in Peru and, contingently guaranteed through 2016, $12,350,000 of its debt obligations. The Company has also guaranteed the rail joint venture’s contingent obligations relating to the performance of its governmental rail concessions, currently in the amount of $4,932,000 through April 2012.  The Company has contingently guaranteed, through 2016, $12,330,000 of debt obligations of the joint venture in Peru that operates four hotels and, through 2014, a further $8,370,000 of its debt obligations.  The contingent guarantees may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if OEH’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred.

Long-term debt obligations of the Peru hotel joint venture at September 30, 2011 totaling $20,700,000 have been classified within current liabilities of the joint venture in its stand-alone financial statements, as it was out of compliance with the debt service coverage ratio covenants in its loan facilities. It is expected that these loans will be refinanced before December 31, 2011.

Long-term debt obligations of the Hotel Ritz, Madrid, in which OEH has a 50% equity investment, at September 30, 2011 totaling $91,909,000 have been classified within current liabilities in the joint venture’s stand-alone financial statements as it was out of compliance with the debt service coverage ratio in its first mortgage loan facility. Discussions with the lender to bring the hotel into compliance are continuing.  OEH and its joint venture partner have each guaranteed $10,063,000 of the debt obligations and $146,000 of a working capital loan facility of Hotel Ritz, Madrid..

The Company has also guaranteed, through 2011, a $3,000,000 working capital facility to Eastern and Oriental Express Ltd. in which OEH has a 25% equity investment.