eBusiness Weekly
Zimbabwe Stock Exchange-listed entity African Sun has said the prevailing operating environment made it difficult to fulfil some of the requisites of its hotel management contract deal with Legacy Hospitality Management Services Limited.
The deal in question commenced on 1 October, 2015 and gave Legacy the responsibility for managing the day-to-day operations of five of African Sun’s hotels for a monthly fee.
The deal was, however, terminated last week after Legacy took the local Hotel Group for arbitration, following disagreements.
Without disclosing the full details on why the two parties had to go for arbitration, African Sun managing director Edwin Shangwa told Business Weekly that the prevailing economic environment had made it difficult for the two parties to meet some aspects of the deal.
Shangwa said although the question of management fees was also part of the issues that went for arbitration, termination of the deal wasn’t because either party to the deal “were poor performers”.
He said the prevailing economic environment had made it impossible for the business to raise some of the required funding.
“We did what we could and have done some investments to the tune of $4 million just for those five hotels managed by Legacy, but that’s what we were able to pull in.”
Shangwa said the deal came through at a time when the economy was not performing, “but we did what we could.
“It just became one of those things where you are overtaken by bigger things, the economy, the macro environment actually superseded us and then we ended up in a position they felt they wanted to take us for arbitration,” said Shangwa.
Termination of the deal will mean African Sun will have to re-brand in areas where the Legacy brand was being used. It will also mean reverting management of the hotels in question to the company, with effect from the 24 April, 2019.
Shangwa said managing its own hotels will not be a new experience to the company as they have previously and currently do so with the five other properties that were not covered by management agreement.
“This is all due to the fact that all employees responsible for the day to day operations at these hotels have always been and continue to be employed by the company,” said Shangwa.
He, however, explained that Legacy was never meant to come in as an investor but only as a manager to provide human skills and impart expertise to the company’s employees of more than 1 200.
He said the market had a wrong impression that Legacy had planned to invest US$60 million towards refurbishing African Sun Hotels.
“They were never to come as an investor, they were just coming in as a manager with human skills and expertise. As is the norm in the hospitality industry, management agreements, all capital expenditure is done by the owners of the business,” said Shangwa.
“There is an impression that Legacy was going to spend US$60 million towards refurbishing African Sun Hotels, which is not so. The company (African Sun) is the one that was always going to pick up the whole capital expenditure in the period which by the end of 2018 stood at US$4 million for the five hotels managed by Legacy,” said Shangwa.
He added that African Sun, as the owner of the business carried all risk and profits associated with hotels that where being managed by Legacy.
Shangwa said African Sun believed in improving its product and this year plans to invest US$11 million in product improvement and expansions.
