News update – Kenya plans two tier strategy to sell off hotel, lodge and resort shareholdings

KTDC’S SALE IN HOTEL SHARES TO BE A TWO TIER AFFAIR

Information from Nairobi about the upcoming sale of shares in hotels, lodges and resorts, held by the Kenya Tourist Development Corporation on behalf of the Kenyan government, talks of a two tier strategy in selling off these holdings, or as it appears turning some of them into a joint venture with a key investor – yet to be found though.

The shares held in the companies owning the Intercontinental Hotel, the Hilton Hotel, the Ark and the Mountain Lodge, are reportedly being offered to the respective financial partners in these ventures on a ‘first right of refusal’ basis, which will give such companies as Serena Hotels – in the case of the Mountain Lodge – and Fairmont Kenya – in the case of the Ark – the option to buy out the government shares. The same applies to leading city business hotels Intercontinental and Hilton, where existing shareholders in theses companies will be able to exercise their prerogative to buy these shares.

However, other hotels and lodges appear to be in a more precarious situation, as they are run down but yet form part of a group of properties developed by government with the intent of providing such services for the locations they were built in.

Those properties, government in Nairobi now thinks, should be ‘pooled’ as a going concern and ‘circuit’ and may include both better known prime choices like Ngulia and Voi Safari Lodges and the Mombasa Beach Hotel – presently known as Kenya Safari Lodges and Hotels – but also the ‘lesser’ properties like Mt. Elgon Lodge near Kitale, the Golf Hotel in Kakamega, the Sunset Hotel in Kisumu and the Kabarnet Hotel. Here the option now explored would be to find a majority shareholder taking 51 percent in a joint venture with government’s KTDC to ensure that some of the ‘lesser’ properties are not turned to different uses, which would deprive the respective locations of a hospitality business.

Much will depend however on how these properties are being valued, as in present market conditions investors will pay fair value but not over the top, considering that most of these units will require massive investments in modernization and refurbishments before they can meet the level of standards for instance set by Serena Hotels, Fairmont, Sarova and others. Leaving the refurbishment however to KTDC, another idea apparently being considered, might put a potential investor off as this might not meet with the expectations of quality work they might have in mind and further considering that government really has no place in business these days, this being arguably better done by the private sector.

Caution has therefore been voiced not to spend tens of millions of US Dollars in such refurbishments before entering into a joint venture and to leave that to the new partnership after it has been formed with competent hospitality operators cum investors. Watch this space.

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