Why Lonrho sold its Kenyan jewels

Lonrho Africa Plc entered the final phase of its disengagement with Africa last week by shedding its top hotels in Kenya for a confirmed Sh2.4 billion

Back in 1989, when Mark Too signed the deal with Reuben Block that gave  ownership of the prestigious Norfolk Hotel to Lonrho Africa Plc, he probably never envisioned this moment.

But like the political fortunes of the man who was once at the helm of Lonrho's interests in Kenya, the company's financial luck had hit the slow lane. At the time, the company was on a buying spree across the continent under the late Tiny Rowland.

Last week, the UK-based group made a tidy Sh674.5 million profit over and above the net asset value of the five hotels, after selling them to a Saudi-Canadian consortium, as it raced to meet a deadline for full divestiture from the continent – originally set for 2003. 

"The board seeks to dispose of the remaining assets in Africa during the coming year," Lonrho Africa chairman Bernard Asher said of the group, then employing 14,000 people in Africa, in a BusinessWeek interview early 2003. The latest action concludes heated speculation on the eventual owner of the Kenya prestigious hospitality units, where big names, some of political clout, featured prominently.

Lonrho Africa Plc of London was paid $17.05 million for 100 per cent of its Kenya interests–15.95 immediately and the balance in the next 18 months. 

Unconfirmed reports indicated a Kenyan motor dealer brokered the deal, pocketing as much as a million pounds sterling; a claim he strenuously denied when contacted. For Lonrho Africa, its hotel business in Kenya has been a true gem. Lonrho Hotels Kenya in the year to September 2004 made a profit before tax of $200,000 (Sh28 million), and its net asset value was put at $12.3 million. 

Norfolk Hotel, the Mount Kenya Safari Club (59.67 per cent owned by Lonrho), Aberdare Country Club (59.67 per cent), The Ark and Mara Safari Club (75 per cent) are next year set to undergo a $25 million refurbishment, and will operate under the name Fairmont from June 2006. Fairmont which has 15 per cent stake in the consortium, will manage the units.

The five hotels were acquired last Wednesday by the consortium, formed by Kingdom Hotel Investments (KHI), IFA Hotels & Resorts and Fairmont. Reports indicated the units which have been on the block for sometime now attracted serious interest from Tripoli to Dubai.

The hotels were part of eight Lonrho Africa units spread out in Kenya, Ghana and Mozambique, where, according to information filed with Johannesburg Stock Exchange (JSE), Hotel Cardoso is next on the block.

Lonrho, founded in 1909 in what was then Rhodesia (Zimbabwe), has been through a rough patch both locally and internationally. In March 1998, the parent company de-merged its non-mining African interests as losses piled on.

In the first year of the de-linking, the board had to fend off a fierce battle for control by a group of speculative sharks led by the famous George Soros' (fresh from notoriety of nearly crashing the mighty British Pound through a historic bet) Blakeney Management. The cash-laden Blakeney dubbed Lonrho management "old-fashioned conglomerate" types. 

Earlier, Mr Rowland had been thrown out as chairman in 1994, a major sign of waning of his once awesome power that defied the Cold War. Listed on Johannesburg and London Stock Exchanges, its price has maintained a downward trend, with the share price halving before year-end following de-merger.

At the apex of its cowboy-style operations, the firm was present in 60 countries globally. In Africa, Mr Rowland strutted the corridors of power, with speculation rising that he could have helped unseat uncooperative governments. He was reported to have had unlimited access to former President Moi at State House, Nairobi, until his house of cards begun crumbling. Nairobi-based Lonrho East Africa was chaired by the once influential Moi right-hand man Mr Mark Too, who took over from President Kenyatta's relative, Mr Udi Gecaga in a familiar pattern. Mr Too resigned in February 2001, as his political fortunes began to wane. 

Slowly by slowly, Lonrho investments in Kenya have been chalking up somehow ignominious press. One of them was the insolvent Lonrho Motors, struck off the Nairobi Stock Exchange in 2000. At the turn of the Millennium, the then Toyota franchise-holder tapped into the raging commercial paper (CP) fad, scooping millions to shore up its flagging fortunes. The whole CP programme was worth around Sh1 billion.

In a bitter indictment of the Capital Markets Authority (CMA) in Nairobi, the firm went into receivership within months in 2000, leaving investors – like the Catholic Diocese of Nairobi, Kenya Charity Sweepstake and Southern Credit – struggling to get their money back through the courts, after the parent company withdrew its support of the local firm. Predictably, the incident has become a mantra for opponents of the unsecured bond issue.

Toyota, the giant Japanese car manufacturer, has since implemented a takeover of its trading business, establishing the successful Toyota East Africa to snatch trading from Lonrho Motors East Africa – whose troubles, ironically, coincided with a slump in the market for new motor vehicles. 

In 2002, New Nyanza Wholesalers took over Bruce Trucks & Equipment from Lonrho Motors. The firm held franchises for Mitsubishi Fuso, Iveco, Ashok Leyland trucks and Fiat Hitachi heavy-duty construction equipment. Its assets included a 5.4 acre plot in Industrial Area Nairobi where its premises were set. 

Another investment that has since been taken over by investors reckoned to be well-grounded in the power axis of former President Moi's regime is Eldoret-based wattle firm, Eatec (East Africa Tanning and Extract Company). True to Lonrho's controversial existence, the extensive wattle tree estate changed hands with conflict dogging the process early this decade. More controversy has lately sucked in the firm as it sought to get back its once-lucrative poles' contract with the Kenya Power and Lighting Company, to little success.

Mr Rowland at the height of his power, once owned the Standard newspaper, a major bargaining chip, which has since changed hands. 

Lonrho also owned the imposing Lonrho House in the middle of Nairobi's Central Business District, which was later acquired by KCB, before being offloaded to the bank's reluctant pension fund. 

The firm also spun off the Farmers Choice meat processing business as it continued sinking further in the red. It also owned a number of agri-business concerns on the continent, some of which have been sold off.