The State’s planned divestiture from Nairobi’s collapsed iconic Hilton and InterContinental hotels has run into headwinds amid struggles to find a buyer for the prime properties.
Documents tabled in the National Assembly revealed that the Privatisation Authority did not get a buyer to match the reserve price set by the government for its shares in the two rusting high-end hotels.
Their sale was approved by Parliament 12 years ago.
The Privatisation Authority, which is tasked with overseeing the government’s divestiture plan, put the State’s shares in the two hotels on the market in March and April 2024 after previous attempts to offload the stakes to owners, who had the right of first refusal, collapsed.
However, the bids for Hilton and InterContinental, popular as InterCon, fell short of the pre-determined market value—meaning that the two hotels will remain shut for a longer period and their luxurious facilities unused.
The Treasury had hoped to cut deals for the two hotels by the end of last year.
“The transactions were taken to the market through an advertisement for Expression of Interest (EOI) which was evaluated successfully and Request for Proposal (RfP) documents issued to the qualifying bidders,” Treasury Principal Secretary Chris Kiptoo said in budget documents to lawmakers.
“However, sales were not sealed as the bids received were below the reserve prices.”
The government has refused to publicly disclose the reserve price for the minority shareholding in the two firms. The government owns 40.58 percent of International Hotel Kenya Ltd, the holding company for Hilton Hotel, and 33.83 percent of Kenya Hotel Properties Ltd which is traded as InterContinental Hotel.
The State made the first concrete move to offload its shares in Hilton and InterContinental back in 2015, three years after Parliament approved the divestiture plan from the hospitality industry.
The proposed sale to existing shareholders, nonetheless, collapsed after they failed to match the value the then Privatisation Commission had set.
The government revived the plan to sell the collapsed hotels early last year, first inviting investors to bid on the 33.83 percent shareholding in InterContinental in March followed by Hilton in April.
Before putting the State’s shareholding in both firms on sale, the Authority’s chief executive Joseph Koskey had told the Business Daily that “it is not the business of the government to make and sell mandazi”.
InterContinental shut its doors at the building adjacent to Parliament in August 2020 and sent its staff packing after a desperate battle for survival that was maimed by the Covid-19 pandemic.
The hotel chain’s woes had, however, begun way before the pandemic. For instance, in 2019 it had been declared ‘‘technically insolvent’’ by the Tourism Finance Corporation (TFC), which held the government’s stake in the property.
In a letter to the privatisation agency in February 2019, TFC lamented that the business was on its deathbed. TFC, Industrial Development Bank Capital and Industrial and Commercial Development Corporation were merged in 2021 to form Kenya Development Corporation (KDC).
The KDC put its 40.5 percent stake in Hilton Hotel at Sh860.6 million, valuing the business at Sh2.11 billion.
After devaluing its ownership, it valued the 33.8 percent stake in InterContinental at Sh117.6 million, valuing the business at Sh352 million.
With the hotel shut, the land where the 389-room facility sits is considered prime and a trophy asset by property investors. The land is estimated at 3.3 acres with a value of nearly Sh2.4 billion.
The hotel was already struggling before the pandemic and was in 2019 declared technically insolvent on failure to service its debts that stood at Sh717 million.
The debt was owed to Stanbic Bank. The Intercontinental Hotels Corporation Group, which is listed in both the UK and USA, also ended its lease agreements with Kenya Hotel Properties Limited (KHPL), the holding company for the five-star hotel.
Since April 1967, the InterContinental Hotels Corporation has operated and managed the 389-room InterContinental Hotel Nairobi under a 99-year lease.
‘‘KHP is not able to service its long-term facilities as they fall due. [This has] attracted huge interest and penalties,” TFC said in a letter to the agency.
The 389-room InterContinental Hotel was said to be lacking basic safeguards such as insurance for its property—exposing it to loss in the event of incidents such as fires.
The iconic 287-room Hilton Hotel Nairobi, on the other hand, closed its doors indefinitely on December 31, 2022, which signalled the end of the era for the business that had operated since 1969.
New York Stock Exchange-listed Hilton International Limited, which has 59.42 percent stake in the Nairobi hotel, also sought in May last year to sell its shares.
The fate of this deal is unknown.
The Privatisation Authority did not respond to questions on the options on the table following the latest failure.
The rooms of both establishments remain empty as the facilities rust away, with maintenance costs soaring.
As part of the options, KHPL had in 2021 sought to lease out or convert the InterContinental Hotel building into a mixed-use property, but later went quiet.
The conversion would have seen the building become an office block, with shops, restaurants, and other businesses.
Allies of former president Daniel arap Moi under Sovereign Group own a 53 percent stake in Nairobi’s InterContinental Hotel.
Sovereign Group is chaired by Joshua Kulei, a former powerful aide to the late President Moi and a wealthy businessman with interests in media, education, mining, real estate, logistics and hospitality.
Some of the firms it jointly owned with the Moi family include Standard Group, Sunshine School and Siginon Group.
State-owned Development Bank of Kenya has a 12.99 percent stake.
