The owners of InterContinental Hotel, including allies of former president Daniel arap Moi, are considering leasing out the building or converting it into a mixed-used property, complicating the State’s efforts to sell its 33.8 percent stake in the five-star hotel.
Kenya Hotel Properties (KHP) is seeking a consultant to advise on change of business model for the hotel, which closed permanently in August last year, to include a mixed-use approach —signalling the hotel building could be converted to office blocks, shops and mini-hotels.
It is also open to selling or leasing the InterContinental hotel building to the government, which owns several buildings in the vicinity including Parliament, KICC and Sheria House.
The permanent closure and the decision of global chain InterContinental Hotels Group (IHG) to stop running the Nairobi hotel has downgraded its value.
“Define the various strategic options available for the company premises and adjacent parking silo to repurpose the property to ensure maximum returns on investment,” said KHP in a notice seeking consultants.
“To envision and evaluate a mixed-use approach to the premises together with the pros and cons associated therewith.”
This signals that KHP is keen on earning leasing fees from the 389-room InterContinental Hotel, whose sale of the government stake has dragged for more than a decade.
An investment banker close to the Moi-linked Sovereign Group told the Business Daily earlier that the firm had little interest in purchasing the government stake amid the slump in the travel sector and the exit of the anchor partner -- the IHG.
“There is little value for Sovereign to run the hotel. The land where the hotel sits is more important compared to the hotel,” said the investment banker who requested not to be identified.
The Privatisation Commission was expected to start talks with Sovereign Group to buy the stake that the government holds in the hotel.
But the commission, which is in charge of sale of government firms, sad it had yet to receive offers from local or foreign buyers willing to acquire the stake in the hotel, which closed in August at the height of the Covid-19 crisis.
Sovereign Group is the largest individual local investor in the hotel with a 19.2 percent stake while Development Bank of Kenya has a 12.99 percent stake.
Joshua Kulei, former President Moi’s former private secretary, Rodger Kacou and Ahmed Jibril own a combined stake of less than one percent in the firm.
The Intercontinental Hotels Corporation Group, which is listed in both the UK and the USA, has a 33.8 percent stake in the hotel group.
InterContinental Hotel in August announced plans to end its lease agreements with KHP, the holding company for the five-star hotel, and shut down the facility amid the coronavirus economic fallout.
This had made Sovereign Group the likely candidate to acquire the 33.8 percent stake ahead of sale to outsiders.
The InterContinental Hotels Corporation has been running and managing the 389-room InterContinental Hotel Nairobi under a 99-year lease since April 1967.
Kenya lost over Sh100 billion in tourism revenue last year, when the number of foreign visitors fell by two thirds due to Covid-19.
The sector brought in the equivalent of Sh163.5 billion in 2018, and the government had initially expected that figure to grow one percent in 2020.
Analysts forecast that global travel will take more than three years to recover, cutting investors’ appetite for expansion in the sector.
Besides the effects of Covid-19 on the hotel industry, KHP is fretful of the impact of real estate developments near the InterContinental building, including the Nairobi Expressway and the soon to be opened bus park.
It wants the consultant to review if the building could be used by the government, signalling its open to sale or lease of the hotel building to the State.
“The analysis should review and advise on the potential strategic re-evaluations for hospitality and commercial real estate for utilisation by the government and private sector,” said the KHP notice.
The exit of InterContinental Hotels Group came amid financial struggles at the Nairobi facility.
InterContinental Hotel was already struggling before the pandemic and was last year declared technically insolvent since it could not service its debts that stood at Sh717 million. The debt was owed to Stanbic Bank.
Talk of an ownership shift at the hotel began in August 2011 when the then President Mwai Kibaki’s Cabinet gave the green light to the sale of the Tourism Finance Corporation’s (TFC’s) stake with pre-emptive rights to existing shareholders.
TFC, formerly known as Kenya Tourist Development Corporation, was offloading the shares in an exercise meant to transfer government-owned businesses, including underperforming sugar mills, to the private sector.