State team seeks strategic partner in sale of hotels

23 Aug

Three State-owned hotels put up for sale by the Cabinet last week are likely to be offloaded to a strategic investor as a block. Such a sale would help the government to quickly dispose of its stake in the hotels, but deny the public a chance to own shares in the prime hospitality facilities as would be the case if they were sold through an initial public offering (IPO).

The Cabinet last week approved sale of government stakes in the Hilton and Intercontinental hotels in Nairobi, and the Mountain Lodge on the slopes of Mt Kenya.

Chief executive of the Privatisation Commission, Solomon Kitungu, said on Friday he expected Treasury to communicate to the agency the Cabinet’s decision so that the sale process can start.

Parliament’s Finance Committee is expected to discuss the proposed sale, which is targeted for completion before the end of the year.
Money raised from the privatisation will be given to the Kenya Tourist Development Corporation (KDTC) for re-investment in the hospitality industry.

The government through KTDC owns 40.7 per cent of the Intercontinental, 39.11 per cent in Mountain Lodge and 33.8 per cent in Hilton.

Paul Orem, the executive director of Dyer and Blair Investment Bank- which had been appointed transaction advisor in the preliminary stage of the privatisation- said Treasury preferred disposing of the stakes either to a strategic investor or by allowing the current shareholders to buy out the State.

In either scenario, the government’s intent was to sell its stake as a block rather than offloading to the general public through an IPO as was the case with Safaricom, Kenya Power, Kengen and more recently Kenya Reinsurance Corporation. Treasury has favoured offloading its stake as a block to a strategic investor rather than selling through an initial public offering.

The Privatisation Commission already has indicative values of the hotels as per the preliminary valuations, but Mr Orem said a more comprehensive audit would be done before the planned sale.

Audit and tax consulting company PKF and law firm Hamilton, Harrison and Mathews were also transaction advisors for the sale. Mr Kitungu said the Privatisation Commission was playing an oversight role that included informing Treasury on the most viable exit route.
owners opt to exit.

While political and public interest considerations at the Finance Committee stage could inform the exit route that the State will finally adopt, it is the valuation of the individual businesses that would draw the most interest as the hotels are perceived to be highly profitable ventures.

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