The closure of the five-star InterContinental Hotel Nairobi is set to derail the sale of the government’s stake to a company associated with the family and allies of late President Daniel arap Moi.
The Privatisation Commission was expected to start talks with Sovereign Group — the fund associated with the Moi allies -- to buy the 33.8 percent stake that the government holds in the hotel.
But the permanent closure and the decision of global chain InterContinental Hotels Group (IHG) to stop running the Nairobi hotel has downgraded its value.
Sources at the commission reckon that the latest turn of events surrounding the luxury hotel may see Sovereign Group review its interest in the government stake.
“The closure of the hotel will definitely hit the ongoing sale of the hotel,” said a top executive at the Privatisation Commission who spoke on condition of anonymity.
“The value of the hotel has been downgraded, with UK-based InterContinental Hotels Group severing links with it. Sovereign Group is unlikely to show interest now that the anchor partner has decided to run and cut its losses.”
InterContinental Hotel on Tuesday announced it was sacking all employees and ending its Kenya operations amid the coronavirus economic fallout.
Kenya has lost Sh80 billion so far in tourism revenue, about half of last year’s total, due to the pandemic.
“I can confirm that the lease agreement between IHG and KHPL (Kenya Hotel Properties Limited) is in the process of being terminated, but we’re not commenting further on the specifics,” said the InterContinental hotel in an e-mail response to the Business Daily.
The InterContinental Hotels Corporation has been running and managing the 389-room InterContinental Hotel Nairobi under a 99-year lease since April 1967.
This means that KHPL, the holding company that owns InterContinental Hotel Nairobi, will seek another hotel group to run the Kenya facility or sell its prime city centre property.
The Privatisation Commission had restarted the sale of the 33.8 per cent government stake in InterContinental Hotel Nairobi through pre-emptive rights to existing shareholders, meaning existing owners of the hotels will be given the first right to buy the stake.
This gave Sovereign Group an edge in the purchase of the government stake after InterContinental Hotels Group, which also owns 33.83 per cent, signalled its exit. Sovereign Group owns 19.2 per cent of KHPL while Development Bank of Kenya has a 12.99 per cent stake.
Joshua Kulei (President Moi’s former private secretary), Rodger Kacou and Ahmed Jibril own a combined stake of less than one per cent in the firm.
“The government is unlikely to get a good price for its stake if Sovereign Group agrees to a deal and decides later to get a new operator at the exit of InterCon,” said the official at the privatisation agency.
The sale of government shares in InterContinental hit a snag in 2015 after Sovereign Group placed bids that were below the set reserve price.
The investment group also failed in its bid to acquire the 33.83 per cent stake that belonged to global chain InterContinental Hotels Corporation.
The Competition Authority of Kenya (CAK) had in 2015 approved the transaction for acquisition of 5,874,391 shares in KHPL by Sovereign Group for an undisclosed amount.
The exit of InterContinental Hotels Group, which is listed in the London Stock Exchange, comes 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 for the sale of the Tourism Finance Corporation (TFC) stake with pre-emptive rights to existing shareholders.
TFC, formerly known as Kenya Tourist Development Corporation, was offloading the shares in a privatisation exercise meant to transfer government-owned businesses, including underperforming sugar mills, to the private sector.