An announcement by the InterContinental Hotels Group that it is considering permanently closing its landmark facility in Nairobi could impact on Kenya’s credentials as an investment hub.
The iconic 389-room hotel in the city centre has been in operation since 1969.
In a statement last week, the group said it was winding up all its operations in the republic of Kenya. Since the investor has yet to give details for this drastic decision, pundits have assumed that it is all to do with the impact of the Covid-19 pandemic on the travel and hotel industries.
I don’t agree. If it is just because of the pandemic, why close the 51-year old business permanently? Clearly, the impact of Covid-19 on the business environment is just but one of the factors behind the drastic decision by the foreign investor.
Please go through the story and long narrative which I give below to see whether I have a point in maintaining that there is more than meets the eye in this saga.
For nearly 10 years now, the foreign investor has been operating under uncertain conditions because the government kept dithering over the issue of privatisation of its shareholding in the hotel group.
The investor would not proceed with plans to refurbish and modernise the hotel. Neither would the group get the go-ahead to inject new equity into the business.
Reconciling its strategic and long-term interests with those of local shareholders became a big headache.
By way of background the ownership structure of the business is as follows: the State-owned Kenya Tourist Development Corporation (KTDC) holds a stake of 33.83 per cent, the foreign investor, the Intercontinental Hotels Corporation Ltd 33.83 per cent, Sovereign Trust Ltd belonging to the family of former President Daniel arap Moi, 19.38 per cent, and the State-controlled Development Bank of Kenya 12.99 per cent.
The hotel is leased to the InterContinental Hotels Corporation Ltd for a period of 99 years from April 15, 1967.
With this shareholding structure, it meant that any injection of new capital to fund refurbishing of the hotel would lead to dilution of the shareholding stakes held by local shareholders.
For many years, the foreign investor’s hands were tied because the locals did not want to be diluted. I have seen correspondence where the InterContinental Group lamented to its local co-partners during a board meeting that procrastination on privatisation was holding it back despite the fact that it had already secured $ 75 million it planned to pump in refurbishing the hotel property
In 2009, the foreign investor saw hope when the Cabinet approved privatisation of all KTDC –owned assets, including the 33.83 stake in InterContinental.
In March 2011, the Office of the President put out a circular stating that the government had stopped plans to privatise KTDC assets. Whether to sell KTDC assets had become a shilly-shallying game. The foreign investor continued to live and operate under conditions of unpredictability. In a letter dated Sept 1, 2014, from the Chief of Staff and Head of Public Service, the Privatisation Commission (PC) was authorised to proceed and sell KTDC’s stake in the hotel.
Apparently, the Moi family had at that point already moved with alacrity and given KTDC an offer of Sh 1.9 billion ( Sh 325.50 per share) for the whole stake.
For a while, all indications were that the Moi family would clinch the deal at the price they had offered and take total control of the company.
It did not happen because the Moi family changed tactics. In December, 2014, it wrote a letter to the PC December bringing down their offer to Sh628.5 million (Sh107 per share) for the stake. What happened thereafter remains unclear.
But in early 2015, the Competition Authority of Kenya put out a gazette notice announcing the intention of Inter-Continental Hotel Group to sell their stake to the Moi family.
Can an investor, really, inject money into a business under such circumstances?