InterContinental is the second international hotel brand to pull out of Nigeria, this year

Research . 7 years ago

Hotel Management Agreement

IHG

intercontinental

lagos

milan group

Milan Industries

nigeria

...
InterContinental is the second international hotel brand to pull out of Nigeria, this year

Share this post

Subscribe to our newsletter

Article Summary: The InterContinental Hotels Group (IHG), operators of the InterContinental Hotels brand, announced its intention to exit its only hotel operation in Nigeria, after a fall-out with the property's receivership manager. The 358-room InterContinental Hotel Lagos opened in 2013, after a long development period marked by stretches of inactivity. 


Last week, InterContinental Hotels Group (IHG), operators of the InterContinental Hotels brand, announced its intention to exit its only hotel operation in Nigeria, after a fall-out with the property’s receivership manager.

The 358-room InterContinental Hotel Lagos opened in 2013, after a long development period that saw long periods of inactivity.  The hotel is owned by Milan Group, and has had its development programme and operations hampered by debt. Milan Group is an Indian-owned family conglomerate that has operated in Nigeria for nearly 40 years.  The hotel opened with a development cost of N30 billion (approximately US$83 million, at current values), with funding provided in large part by Skye Bank and a consortium of other lenders.  Skye Bank’s portion of the lending was estimated at US$29.8 million and N3.8 billion, according to several news reports including ThisDay Online.  The bank also facilitated a N500 million overdraft to fund payments to contractors, and for the importation of materials necessary to complete the hotel’s construction.

However, the hotel opened into an operating environment that soon negatively impacted revenues and profits.  These included the West African Ebola health crisis in 2014, the uncertainty of the Nigerian general elections in 2015, the crash in oil price, the eventual Nigerian recession in 2015, as well as the devaluation of the naira and ensuing fiscal crisis.

Swimming Pool at the InterContinental Hotel Lagos. Image Source: www.ihg.com

In May 2017, Skye Bank obtained a federal court order granting the right to take over ownership of the hotel due to the debt still owed on the property.  The hotel’s owners, Milan Group, had apparently failed to adequately service the debt and the court order gave Skye Bank the authority to take over all of the group’s assets, including the InterContinental Hotel Lagos.  A receiver-manager was appointed following the court order.  IHG claim that several efforts were made to engage with the receiver-manager, which proved futile.  IHG claims it was owed up to US$3.1 million (approximately N995 million) in management and other fees.  Subsequently, the hotel operator saw it fit to invoke its right to terminate the management agreement on the property, based on a clause which allowed the right to do so “upon the appointment of an administrator or receiver over the assets of Milan”.  IHG states that termination will be effective as of January 18, 2018 – its marks, licenses, management, and operation of the hotel will cease at that date.

Should IHG indeed go ahead to terminate the agreement on the property, it will no longer have any operations in Nigeria, as InterContinental Hotels or any of its other 11 brands.  Per the 2017 Africa Hotel Chain Development Pipeline report,  IHG reported it had seven hotels in the pipeline in Africa, with 1,632 hotel rooms.  It currently operates 25 hotels (6,445 hotel rooms) across the continent, in markets like Accra (Holiday Inn), Nairobi (InterContinental and Crowne Plaza), and Dar Es Salaam (Holiday Inn).  The InterContinental brand will be the second international hotel brand to pull out from a hotel management agreement in Lagos, this year.  Earlier in January the Renaissance Hotel Ikeja rebranded as a Radisson Blu, after Marriott terminated its management agreement on the property.