Along with surely every market worldwide, the COVID-19 pandemic has had a devastating impact on sub-Saharan Africa’s hospitality arena. As the sector continues grappling with the impact of successive waves of the virus, and weathers an onslaught of changing restrictions, an analysis of existing funding structures reveals both substantial challenges and potential solutions. The greatest challenge is liquidity, and how to achieve it. What are the key solutions to this huge impediment to growth in this market? How are commercial banks and Development Finance Institutions (DFIs) stepping up? What solutions have Radisson Hotel Group offered in response to the pandemic? And what potential future solutions are out there for the Group to leverage to maintain its strong historic growth, and entrench its position as the hotel operator of choice for developers, owners, and guests?
Conversations with commercial banks have yielded positive outcomes in terms of how these lenders are addressing the fallout of the COVID-19 pandemic. Their focus is clearly not on financing new hotel developments in 2021, but rather on proactively supporting their existing portfolios. Banks are acutely aware that hospitality businesses may not be able to meet their ongoing financial obligations when tourism numbers are at an all-time low. Therefore, they are reviewing enterprises case-by-case as they seek to customise solutions.
About March last year, most banks decided to institute six-month moratoriums on principle debt and to capitalise interest payments due. Many subsequently opted to extend this moratorium to March 2021, as establishments in the region began opening their doors again in about September/October 2020, assuming that by March 2021 hotels should be able to start meeting these obligations. Certain banks are however building in an option to extend by a further three months if necessary.
Although banks are encouraging hoteliers to source new equity partners to help reduce debt, that’s easier said than done in the current economic climate. Hence, banks are further assisting these businesses with short- term working capital facilities, to boost their restart operations and help pay suppliers and staff.
With most loan tenures in this market being between seven and 10 years, banks in the region have also considered extending tenures for an additional average of two years in a bid to reduce loan instalments. Additionally, initial talks regarding loan price restructuring have taken place but are generally still in the early stages.
In essence, commercial banks are taking a wait-and-see approach rather than making rash decisions. They are allowing these moratorium periods to play out before listing hotels in their portfolio as distressed.
DFI’s are acting similarly, while not considering any current financing of new hospitality projects. Here, again, the focus is on the maintenance of their current hotel portfolios.
Radisson Hotel Group has led the way with hotel development and growth in this region over the past decade. To assure continued growth, and to offer a solution to the industry during this time, it has announced its new brand, Radisson Individuals, as a commercial response to the pandemic.
This brand allows hotels to maintain their individuality and their autonomy while still becoming members of the RHG global family, which boasts more than 120 million loyalty members, given the acquisition of RHG by Jiang Jan International in early 2019.
Purely an affiliation brand, it aims to help upscale independently owned and operated hotels with an existing management platform in place. For a period of three years, it connects them with RHG’s global network and distribution systems, sales and marketing initiatives, economies of scale, and bargaining power with Online Travel Agencies and in procurement. The goal is to specifically boost revenue during this challenging time. No property improvement plan is required, and hotels that join can either keep the brand, or use the additional revenue earned during the initial term to switch to one of RHG’s core brands.
The brand opens the door to hotel owners who want to join RHG, but do not have the liquidity to meet brand standards. This way, they join the RHG international network, and boost liquidity during the pandemic.
Newly branded hotels will also comply with the safety and hygiene protocols of SGS (RHG’s hygiene protocol partner), ensuring that health, safety, and security of guests, team members, and partners worldwide is prioritised. Such commitments boost confidence in the brand, so boosting liquidity.
As with all systemic market shocks, the COVID-19 pandemic offers the opportunity for a reset, a chance for the hotel finance market in Sub-Saharan Africa to start again. The key, of course, is to get it right. That means optimising the capital structures behind hotel developments and avoiding inappropriate over-leveraging of hotel projects. The African RHG development team keeps its finger on the “financing pulse”, knowing where to source finance to avoid the classic over-leveraging issues that have plagued the market in the past.
With bank moratoriums coming to an end in March/June 2021, and if the travel and tourism trade doesn’t improve, this could well be the timeline when we see hotels become distressed, and lenders taking control of ownership and placing assets on the market in search of fresh equity. RHG’s strategy during this time will be to monitor the market and keep open the lines of communication with banks and brokers to help identify buyers who are also willing to work with the Group.
RHG was the first hotel operator in Africa to have a dedicated equity fund, the Afrinord Fund. Although now fully committed to key RHG hotel projects, the experience and knowledge still sits within the team. As vaccines are rolled out and the market begins to emerge from lockdown and an opportunity arises to start again, the RHG development team believes that there will be a real opportunity to get things right, leveraging new creative funding solutions.
Our strategy is to take the lead on how and where funds should be deployed to African hotel projects, to ensure optimal allocation. RHG plans to guide equity funders towards projects that make sense in terms of location, project team, brand choice, and debt structuring. Given the fact that most markets in the region are still developing/emerging, it means that of all the territories globally, Sub-Saharan Africa is the most in need of a focused, systematic, methodical approach to future hotel development.