Capital Markets

Serena close to hotel share swap deal

Guests are treated to a buffet at  Movenpick Hotel . TPS East Africa recently acquired a 20 per cent stake in Royal Palm Hotel from Movenpick Hotels and Resorts of Tanzania. File
Guests are treated to a buffet at Movenpick Hotel . TPS East Africa recently acquired a 20 per cent stake in Royal Palm Hotel from Movenpick Hotels and Resorts of Tanzania. File 

Tourism Promotion Services East Africa (TPSEA) is set to acquire TPS Uganda in a share swap deal expected to be completed by March next year.

Valuation of TPS Uganda is ongoing with the transaction having been approved by TPSEA shareholders and awaiting the Capital Markets Authority’s sanction.

TPSEA, which runs Serena hotels, has been managing TPS Uganda properties at a fee. “We are talking of integrating TPS Uganda into TPSEA through a share swap, our consultants are working on the valuation. Subject to approval by CMA and boards of the two firms, we hope to achieve this by the first quarter next year,” said TPS East Africa managing director Mahmud Janmohamed in a phone interview.

In the deal, TPSEA will get full ownership of TPS Uganda and in turn cede a stake equivalent to the value of the Ugandan entity in its shareholding.

TPS Uganda currently owns five star city hotel Kampala Serena Hotel, and acquired a new property, Lake Victoria Serena Resort, in 2009.

TPSEA had issued a cautionary note to its shareholders last year warning them on dealing in the company’s shares until further announcements were made.

Some of the major shareholders include Akfed, Proparco, and NSSF Uganda. “A share swap will see the company reap more from Uganda, whose visibility has increased subsequent to oil discovery,” said Kestrel Capital in a market note to investors.

The company has been expanding regionally in a bid to diversify risk. In 2008 its Tanzanian firm supported its earnings when the Kenyan hospitality sector was affected by the 2007 post election violence.

It recently acquired a 20 per cent stake in the 230-room, five-star Royal Palm Hotel from Movenpick Hotels and Resorts in Tanzania at an undisclosed price. It is also set to acquire a stake in Hotel Source du Nil, a five-star hotel in Burundi being sold by the government. TPSEA also plans to build a new 20-room facility in Rwanda next year subject to environmental approval. The facility is called Gorilla Lodge.

The firm also hopes to benefit from elimination of restrictions on cross-border movement of resources in East African Community countries and approval of a single tourist visa.

Apart from regional expansion, TPSEA plans to upgrade the Nairobi Serena Hotel in a bid to retain and grow its corporate business clientele.

Kestrel Capital said that the aggressive regional expansion by the company could see it seek extra capital.

Expansion plans

“We note the possibility of TPSEA undertaking another rights issue in 2012 to fund its plans.” It raised Sh1.2 billion in a cash call floated last year.

Earlier this year, the company’s management had said that it could raise more money towards the end of the year through a rights issue, a corporate bond, or other vehicles given its expansion plans.
“TPSEA intends to fully acquire TPS Rwanda through a share swap after the successful acquisition of TPS Uganda,” said Kestrel Capital.

The diversification also comes at a time when the local market has attracted international hotel chains such as Belgium’s Rezidor Hotel Group and Starwood Hotel & Resorts, which holds the Sheraton brand.

In Nairobi, at least seven five star hotels have opened shop in the past two years including Ole Sereni, Tribe Hotel, and Crowne Plaza—leaving the city with an additional 2,000 beds.

On Thursday, TPSEA’s share closed at Sh50 at the Nairobi Securities Exchange.