South Africa’s Hotel and gaming group, Sun International Limited has announced that it will packing its bags exiting Nigeria, amid a number of factors.
The company’s earnings in Nigeria has plunged to an all-time low amid a weakening economy and a dispute involving the company’s local partners.
In January Nigeria’s Economic and Financial Crimes Commission (EFCC) launched a probe into Sun International’s initial investment in the Tourist Company of Nigeria, which owns and operates the 5-star Federal Palace hotel in Lagos.
In its results announcement for the year to end-June 2016, Sun International said the Federal Palace continues to operate in a difficult environment with the Nigerian economy facing a number of crises including the low oil price, Islamist insurgency led by the Boko Haram group and a weakening Naira.
Sun International bought 49% of the Nigerian Stock Exchange-listed Tourist Company of Nigeria 10 years ago, giving it part-ownership of the Federal Palace hotel in Lagos, one of the main hotels used by businessmen traveling to the commercial capital.
“The board has decided to exit Nigeria and steps will be taken to achieve this in a manner that does not erode further value,” the company said in a statement.
Earnings before interest, taxes, depreciation and amortization at the Nigerian operations fell 58% in the 12 months through June, Sun said in a statement on Monday. Occupancy rates at the property fell to 42%.
The process of exiting Nigeria is likely to be “protracted,” as Sun seeks to ensure it receives fair value for the investment, the company said. The hotelier said in May it plans to sell minority interests in properties in countries including Zambia, Botswana and Namibia for 394 million rand ($29 million) to reduce debt.
The shares were 0.4 percent lower at 91.76 rand as of 2:02 p.m. in Johannesburg, valuing the company at 10 billion rand.
Sun, owner of the Sun City resort Northwest of Johannesburg, said full-year diluted adjusted earnings per share excluding one-time items fell 20 percent to 6.28 rand, while sales gained 15 percent to 12.2 billion rand. The final dividend was cut to 1.35 rand a share from 1.75 rand the previous year.
The company’s decision to exit Nigeria follows food and clothing retailer Woolworths and Tiger Brands, which sold its loss-making Nigerian division to Dangote Industries.
Sun is the latest SA company to clash with Nigerian authorities after Africa’s biggest mobile-phone provider, MTN was fined for failing to disconnect users with unregistered SIM cards. The mobile-phone provider, agreed to pay a 330 billion naira ($957 million) regulatory fine in the country earlier this year, leading to its first-ever half-year loss.
Nigeria, Africa’s largest economy, is suffering its worst financial crisis in decades as a slump in oil revenues hammers public finances and the Naira. The central bank governor has said recession is likely.
Reporting its results, the company said poor economic conditions and general negative sentiment in its home market of South Africa resulted in revenue growth at casinos of only 0.8 percent at 7 billion rand ($514.78 million).
“In South Africa, the economic environment remains a serious concern. We do not anticipate any meaningful growth in gaming revenue until there is a recovery in the economy and renewed consumer confidence,” Chief Executive Graeme Stephens said.
The South African Reserve Bank expects economic growth at zero percent this year, due to a severe drought and falling commodity prices. ($1 = 13.5980 rand)