Two leading global hotel chains have been cleared to acquire substantial interests in the Hilton and InterContinental hotels in Nairobi.
The green light follows a proposal by the Treasury to give the Hilton Group of Hotels, InterContinental Hotels Corporation and other shareholders in the establishments priority in buying the shares being offloaded by the Kenya Tourist Development Corporation.
Parliament’s Finance, Trade and Planning Committee approved the intended mode of sale, saying it would realise funds for KTDC to upgrade other properties as the international partners renovate the two to international standards.
“The privatisation of the hotels would mobilise resources to enable KTDC to rehabilitate and modernise its existing facilities,” said the committee, chaired by Nambale MP Chris Okemo, in its report to Parliament.
The sale of KTDC’s shareholding in Hilton Hotel (40.57 per cent), InterContinental Hotel (33.83 per cent) and Mountain Lodge Limited (39.1 per cent) was cleared by the Cabinet in August last year. Mountain Lodge in Mount Kenya National Park is managed by TPS Serena and is under lease by the Kenya Wildlife Service.
The Treasury said the sale would be through pre-emptive rights with existing shareholders getting the first right of refusal.
The price will be determined by an independent valuation of the hotels. The hotel chains were not immediately available for comment. However, there is a growing trend where hotel chains opt to lease buildings and manage the business instead of directly owning the facilities. This could complicate the intended sale through pre-emptive rights, leaving the government with the option of selling the KTDC interest wholesale to strategic partners or through the Nairobi Securities Exchange.
The committee said the three properties, despite being in good condition and well managed, were overdue for refurbishment to international standards.
“The committee recommends that the House approves this report on the privatisation proposals of the three hotel entities,” the committee concluded.
Hilton Group of Hotels already owns 59.42 per cent of the Hilton Hotel through International Hotels Limited while KTDC owns the rest.
A sale through pre-emptive rights would see the company take complete control of the hotel in the Nairobi central business district. The hotel has 287 rooms, 45 twins, 185 doubles, seven suites, 22 pool rooms and 27 executive rooms. It had a book value of Sh1 billion as at June 30, 2009, the latest estimate available.
Intercontinental Hotels Corporation Limited and KTDC each own 33.83 per cent of Kenya Hotel Properties Limited, the holding company that owns Hotel InterContinental. Other shareholders in the holding company are Sovereign Trust (19.38 per cent), National Bank of Kenya (12.99 per cent) and Joshua Kulei, Rodger Kacou and Ahmed Jibril with a combined stake of less than one per cent.
The hotel consists of a presidential suite, 91 queen rooms, 39 twin rooms, 47 king rooms, 2 executive suites, 29 extended king rooms, five junior suites and 131 superior rooms among others. KTDC owns 39.1 per cent of Mountain Lodge Limited followed by TPS Serena (29.91 per cent) and other individuals with 30.98 per cent.
The committee also gave the go-ahead for 26 per cent of the Kenya Wine Agencies Ltd (Kwal) to be sold to its South African partner Distell Limited by the Industrial and Commercial Development Corporation. Distell recently withdrew a notice to terminate a 14-year-old contract for the distribution of flagship brands like Viceroy and Amarula.
Distell, which accounts for up to 60 per cent of Kwal’s revenues, had threatened to sever links with the Kenyan firm citing continued delays in privatisation.
The government, through ICDC, owns 72.6 per cent of Kwal while Centum Investment Company owns 26.4 per cent. Other investors hold 0.9 per cent.
The House committee said Kwal’s survival would be threatened if the contract was terminated.
“The withdrawal of Distell’s brands would lead to immediate loss of 70 per cent of Kwal’s business, hence the need for Kwal to negotiate long-term arrangements with Distell for the continued production, bottling and distributorship of products,” the MPs said.
The committee backed a Cabinet decision to sell 26 per cent shareholding to Distell which would in turn sign a long-term supply agreement with Kwal for it to have exclusive rights to sell the South African firm’s products.
Kwal employees would get four per cent of the shares and the other ICDC shares would be sold four years later once the value of remaining shares has improved, the committee said.