Kingdom Holding has made two opposing moves in the past month, one to take its emerging market business private and another to set the scene for its Fairmont Raffles business to go public.
The US$843m offer to take Kingdom Hotels International private was made less than three weeks before the sale of a US$847m stake in Fairmont.
Kingdom Hotel Investments was listed back in February 2006 at US$9.25 per share. The privatisation offer is at a premium of almost 40% to its closing middle-market price for the three months to March 14 this year.
The offer has been made, according to the bid document, because: "There is limited liquidity and low trading volumes in KHI's shares and there is no indication of any catalyst for that to change in the near to medium term."
The document added that KHI had a strong business model and had made significant progress in diversifying its revenue streams since flotation. At the end of last year it had ownership interests in 27 properties in 18 countries comprising 22 operating hotels and five developments.
The total value of the assets was put at US$2.084bn and net debt at US$177m. The offer values the share capital at US$843m.
Although impacted by the recession, KHI remained profitable. In2009, net profit was up 27.4% to US$21.8m and EBITDA was down 13% to US$61.6m. It anticipated mid, single digit growth on system revpar during this year at its year-end results presentation on March 15.
Meanwhile, Kingdom Holding, which is buying KHI, sold a 40% stake in Fairmont Raffles to Qatari Diar Real Estate which is using an entity called Voyager Partners based in the Cayman Islands. Kingdom's stake in the business is falling from 58% to 35%.
According to Prince Alwaleed, chairman of Kingdom Holding, speaking in a Bloomberg Television interview, Qatari Diar, part of Qatar's sovereign wealth fund, will provide Fairmont with the opportunity to manage more properties.
"Consequently when we go public, hopefully in the next two to three years, this will add dramatic value to us," said Prince Alwaleed.
Qatari Diar is also reportedly looking at paying US$275m for the 103-room Raffles in Singapore. A year ago the property had a price tag of $350m. The London Times said that the hotel is set to add another 78 rooms under a refurbishment costing US$100m.
Fairmont Raffles has 123 hotels including 32 either wholly or partially owned. There are 40 projects in the pipeline across its four brands, Fairmont, Raffles, Swissotel and Delta.
HA Perspective: KHI looks something of a steal. The discount to book value of the property within the group is phenomenal. And this is before any value is placed on the corporate structure which is one of the few focused on, and has proven experience in, emerging markets.
It is yet another warning about investing in thinly traded companies which have a shareholder holding a significant stake. The raft of privatisations in the UK in the early 2000s, such as Thistle and Jarvis were earlier examples.