A host of environmental and operational challenges in Nigeria have convinced the board of Sun International to dispose of its share in the Federal Palace Hotel & Casino in Lagos.
[dropcap]I[/dropcap]n its latest full-year financial statement, Sun International has announced that it is to withdraw entirely from the Nigerian market.
Sun owns a 49 per cent stake in the Tourist Company of Nigeria, which owns the Federal Palace Hotel & Casino on Victoria Island, Lagos. The Federal Palace is one of the most popular hotels for both domestic and international business personnel in the region, but the South African operator says that it has faced a string of obstacles in running the property: including tough regulation and a weak local economy. The company also claims that a rift between members of the Ibru family – one of its shareholders in the venture – had amplified these difficulties.
“Continued setbacks in Nigeria as well as the ongoing shareholder dispute have frustrated all attempts to develop and improve the property,” said a company spokesperson.
The company said that its decision to exit the country had been spurred by a recent incident where five of its staff members had their passports confiscated after being detained by Nigeria’s Economic and Financial Crimes Commission. Sun claims that its staff have yet to receive their documentation back, despite no charges having been laid against them.
Whilst Sun says that it intends to dispose of its Nigerian investment in full, the company has acknowledge that this is “expected to be a protracted process given the challenges we are facing and to ensure we receive fair value for our investment.”
Profit at the Federal Palace was down by 58 per cent in the year ending June 30 – with hotel occupancy at just 41.6 per cent.
Sun International purchased its share of TCN in 2006. Over the course of the past decade, it is thought to have channelled over $50m (E44m) into the venture.
The Nigerian economy continues to face significant challenges – including the low export price of oil, internal destabilisation from Islamic extremist group Boko Haram and the weakening value of the Naira. The level of tourism and foreign investment also continues to suffer from the after-effects of the deadly 2014 Ebola epidemic.
As reported by Bloomberg, Sun International is now the fourth major South African company to pull out of Nigeria this year alone. Retailers Woolworths Holding and Truworths International have both made similar announcements in recent months, claiming that rising costs of operation, coupled with impenetrable bureaucracy, had made business in the country untenable.
Across the Atlantic, Sun International’s global expansion strategy is proving more successful, as Chile’s gaming board, the Superintendencia de Casinos de Juego, approved the group’s merger with operator Dreams SA in June. Originally announced in September 2015, the merger created the largest gaming operator in Latin America and is valued at $400m (E358m).
Dreams has built a strong base in Chile where it now operates six casinos and it has more recently expanded into Peru, where it operates four smaller gaming establishments focused primarily on the capital, Lima, with plans to expand across the region.
The merged entity will have a sizeable portfolio of assets situated across four countries, making it the premier gaming group in Latin America, and initially consisting of 13 properties, that between them have 6,500 slot machines, 300 table games, six hotels and 25 restaurants.