African Sun’s biggest shareholder ‘reconsiders’ investments after COVID-19 causes record low arrivals

Dining area at Africa Sun's Elephant Hills: low business causing investor rethink

Arden Capital, the JSE-listed private equity group that controls African Sun, is reassessing its investments after COVID-19 caused the lowest hotel occupancy rates ever.

Arden, formerly known as Brainworks, says it is “currently reviewing the Company’s prospects, financial health, strategy, and ability to continue to viably operate as a listed investment holding company”.

The company holds interests in properties and other investments, but its main investment is the 57% shareholding in African Sun’s 11 hotels, which include Crown Plaza Monomotapa, Elephant Hills and part of Victoria Falls Hotel.

Occupancy rates fell to 23% last year, down from 48% in 2019, according to African Sun. The worst months were April and May. This was the lowest ever level of business for the company, as tourism dipped 85% in Zimbabwe and global travel suffered.

“The group has not yet witnessed recovery in traveling and tourism that it had hoped 2021 would yield to the point that the group has experienced financial pressure, with head office costs becoming unsustainable,” Arden said in a notice.

“These realities have prompted the Board to reconsider certain aspects of the Group’s corporate structure, which are necessary to deliver positive returns for our shareholders in the medium to long term.”

Arden said it would now take steps likely to have “a material effect” on Arden’s share price.

Zimbabwe estimates that COVID19 cost the country US$1.2 billion in lost tourism earnings last year.

Globally, tourism arrivals last year fell 74%, the World Tourism Organization (UNWTO) said in January. In 2020, destinations worldwide had one billion fewer visitors than the previous year. This was the worst year for global tourism on record.

As arrivals fell, African Sun saw its inflation-adjusted revenue drop by 55% to Z$1.84 billion last year. Room nights sold went down by 52% to 137,162 from 288,224 reported last year. Foreign arrivals fell by 82% while domestic visitors were down 35%.

What African Sun will do

To plan for the year ahead, African Sun, in its last financials, said it would lean on two available loan facilities of US$2 million and Z$150 million.

African Sun is also asking tour operators to postpone bookings, instead of cancelling them. This may mean the company paying refunds in foreign currency that it has already used. African Sun has also cu workers’ pay and slashed jobs “to align to volumes of business”. It is also negotiating rental payments with landlords.

Capital expenditure is also being cut. In 2019, ahead of the pandemic, African Sun had announced plans to spend US$25 million on upgrading its facilities. These plans included new rooms for Hwange Safari Lodge and The Victoria Falls Hotel.

African Sun had planned to target the high-end market by joining the trend towards luxury camps, known as “glamping”. The company had planned to complete new camps at Great Zimbabwe and Caribbean Bay Resort in the third quarter of last year. 

In 2018, after a boom in arrivals, many Zimbabwean tourism operators began ramping up investment in their assets.

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