eBusiness Weekly
Business Writer
The collapse of the negotiations between African Sun Ltd (ASL) and Makasa Sun Ltd for the lease of the Kingdom Hotel in Victoria Falls, has raised eyebrows amid concerns that Barclays Pension Fund that owns 50 percent of the 294 – room property might have been sidelined in the negotiations, Business Weekly can report.
Makasa is jointly owned by Barclays Pension Fund and First Capital Bank, the sponsoring employer on a 50-50 deal. Barclays plc sold its local unit to Malawi-listed First Merchant Bank in 2017 when the British lender exited Africa.
Last year, Makasa floated the tender inviting bidders interested to lease Kingdom Hotel.
ASL participated and won the tender to lease Kingdom Hotel, but negotiations collapsed after parties failed to agree on the lease term. ASL managed the Kingdom brand since 1997 after rebuilding the hotel using a US$24 million loan from Barclays.
ASL failed to repay the debt fully after the tourism business tumbled due to violence linked to the land reform programme at the turn of the millennium. Then, a string of travel warnings was issued by the western governments against visiting Zimbabwe.
There was a scheme of arrangement under which the loan was converted to equity with ASL, then known as Zimbabwe Sun Hotels, retaining the pre-emptive right to lease the property.
On Wednesday, ASL shareholders were told during the annual general meeting (AGM) that it was exiting Kingdom Hotel, on notice, after failing to agree on the lease term.
This was after FCB insisted on a two-year lease term as a way of rebuilding the trust “in our business relationship” while ASL wanted 10 years “sufficient to return its investment.”
ASL chairman, Dr Emmanuel Fundira, told AGM that there had not been consensus on the tenure of the lease with the landlord, which was offering a tenure of two years against the “tenure in our bid of at least 10 years, which we deemed sufficient to return our envisaged investment into the hotel.”
Some of the tender requirements included bringing in an international hotel brand and making substantial investments in rebranding. ASL had partnered with InterContinental Hotels Group (IHG) as its international brand partner and the hotel group would have invested US$6,5 million towards rebranding over 10 years.
Investigations by Business Weekly reveal that Makasa Sun, which floated the tender inviting the bids for the lease of Kingdom Hotel was only represented by FCB during the negotiations.
Given the significance of the transaction, there are concerns that “the exclusion of the trustees in negotiations could have yielded results contrary to member’s expectations” some sources said.
This comes as concerns have been raised over the lack of the needed investment expertise and willingness to commit to the board by the trustees. Many trustees are elected from the plan membership and often lack the necessary skills, some critics say.
They noted most of the trustees are appointed from a worker representative perspective without due regard to their knowledge of pension business and appropriate skills.
It has also been observed that most of the employee trustees are manipulated by sponsoring employers, who normally chair the boards and exert their influence to the detriment of the fund members and as a result, thus negatively affect the ability of trustees to fulfill their mandate of protecting the interests of members.
“The negotiations were supposed to be between the landlord, who is Makasa Sun, and African Sun,” said one source privy to the negotiations. “African Sun ended up negotiating with the sponsoring employer (FCB) and all the correspondences were being done through the bank. There was no involvement of the pension fund who jointly owns the property (with FCB) on 50-50 percent shareholding basis.”
“This exposes how the pension funds are being disenfranchised. Makasa Sun is the one that appointed Ernst and Young to adjudicate the tender and the negotiations were supposed to be between ASL and Makasa; not ASL and the bank.”
In a notification of the contract award decision, Ernst and Young partner, Mitch Khalpey wrote to African Sun chief executive Peter Saungweme on February 4 this year:
“Ernst and Young, under instruction from Makasa have been requested to advise African Sun of the outcome of the tender…submitted by African Sun expressing interest in operating and leasing the Kingdom Hotel. I am pleased to inform that Makasa Sun, after thorough consideration of your submission, has decided to award the tender to African Sun pursuant to all contractual undertakings being successfully negotiated and concluded and leading to an exclusive lease agreement with African Sun.”
Confirming the “sole role” of FCB in the negotiations, its managing director Ciaran McSharry wrote to ASL chief executive Peter Saungweme indicating that the bank was unwilling to enter any further concessions outside the two-year lease term.
“You were clear that as a 10-year lease was not on offer, you had come to meet as a courtesy to inform us of African Sun’s intention to surrender the lease and that you would write that week (a) letter to confirm this position. “As discussed over the last number of months, the 10-year lease is not on offer…and it is with this in mind I request that you as per your proposal, on the 14th June, and commitment to write to us to confirm the surrender of the lease, that you now honor that commitment as the bank is not prepared to offer a lease to African Sun at this stage.”
Barclays Pension trustee Tinashe Hwata said; “We were much involved in the negotiations.
Some investment analysts told Business Weekly “what FCB was demanding is unreasonable.”
“How can you have tender conditions requiring to bring in an international brand…and offer a two–year lease; this defies logic and this also raises questions about investment proficiency skills of the trustees of pension funds,” said one analyst.
Emily Nemapare, the head of marketing and communication at FCB, confirmed that Makasa was jointly owned by Barclays Pension Fund and FCB on a 50-50 percent shareholding.
“Engagement between relevant parties on the renewal terms are still ongoing and therefore we are unable to comment on any submissions due to the confidential nature of the transaction,” she said.
