Moi allies lose interest in InterCon purchase

InterContinental Hotel. FILE PHOTO | NMG

By EDWIN MUTAI
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Summary

• 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, says it is 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.
• 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.

The State’s offer to sell its 33.8 percent stake in the five-star InterContinental Hotel in Nairobi has received a cold reception from an investment fund associated with the family and allies of former president Daniel arap Moi.

An investment banker close to the Moi-linked Sovereign Group told the Business Daily 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 Intercontinental Hotels Corporation Group.

“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, says it is 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.

“The commission has not received any expression of interest by either local or foreign investors to buy the hotel,” Joseph Koskey, the chief executive officer, at the commission told the Business Daily in an interview.

“The existing shareholders will get first priority to exercise their pre-emptive rights as provided for in the Articles of Association.”

The implication of this is that the shares being offloaded cannot be offered in the open market until existing shareholders have been given a chance to invest.

Sovereign Group is the largest individual local investor in the hotel.

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.

The only other individual shareholder with a sizeable stake in the group is the Development Bank of Kenya, with 12.9 percent.

InterContinental Hotel in August announced plans to end its lease agreements with Kenya Hotel Properties Limited (KHPL), 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 numbers 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.

Sovereign Group owns 19.2 percent of KHPL 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 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 percent 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 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.