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SSNIT Hotels: Rock City bids $61.2m exceeding $59.1m valuation price

Documents reveal that the amount Rock City Hotel Limited offered to buy 60% shares of the six Social Security and National Insurance Trust (SSNIT) hotels is more than the recent price valuation of the hotels.
The total recent transaction valuation amounted to $59.1 million ($59,156,843). However, the total bids from Rock City Hotels totaled $61.2 million ($61,200,000).
It means when the deal is approved, Rock City will pay $2 million ($2,043,157) more that the valuation price.

Labadi Beach Hotel
While 60% of the recent transaction valuation of Labadi Beach Hotel was $23.3 million ($23,302,793), Rock City offered $29.4 million ($29,400,000).
Other bidders included Yaw Addo Development with $18 million and Luxor Hotels Limited with $9.3 million ($9,366,757).

La Palm Royal Beach
For La Palm Royal Beach, the recent transaction valuation was $22.5 million ($22,515,182).
Rock City offered the highest price of $21 million, compared with Yaw Addo’s $13.1 million ($13,153,000) and Luxor Hotels Limited’s $5.9 million ($5,906,007).
Rock City Hotel’s bid for Ridge Royal Hotel and Elmina Beach Resort was the only bid received.

Ridge Royal Hotel
In respect of Ridge Royal Hotel, the recent transaction valuation amounted to $6.3 million ($6,320,008).
The only bidder, Rock City Hotel, offered $8.4 million ($8,400,000).
While the recent transaction valuation for Elmina Beach Resort was $7 million ($7,018,860), the only bidder, Rock City, offered $2.4 million.

Grand Regency
The value for 25% of Grand Regency Hotel, based on the latest valuation done prior to the transaction by the Ghana Institute of Surveyors dated October 27, 2021, was GH₵6.684 million.
This compares to the sale price of GH₵7.4 million, implying a gain of approximately GH₵716,000 when compared to the valuation.

Steering Committee
The SSNIT Board caused a Steering Committee to be set up to drive the entire process, comprising all the Board Chairpersons of the various hotels, three Board members, and some management staff from SSNIT.

Procurement process
SSNIT went through International Competitive Tendering (ICT) processes as prescribed by the Public Procurement Act, 2003 (ACT 663), as amended by ACT 914, for the selection of a strategic investor.
First, the Trust engaged a Transaction Advisor through ICT method of procurement, with advertisements in the Daily Graphic on November 14, 2018, and in the Ghanaian Times on November 15, 2018.
The advertisement was also published in an international magazine, The Economist, in its January 5-11, 2019 edition.
As of the January 16, 2019 deadline, fifteen firms had expressed interest in submitting bids.
Six firms were shortlisted and issued with Request for Proposal (RFP) documents.
Approval was sought from the Central Tender Review Committee (CTRC) for the selection of a Transaction Advisor on December 12, 2019, and it was granted on December 24, 2019.

Selection of the Transaction Advisor
Fifteen consulting firms submitted Expressions of Interest by the deadline.
An evaluation panel recommended EY Advisory Limited, Colliers International, KPMG Limited, PwC, Deloitte and Touché, and SEM Capital with the best scores to be invited to submit Technical and Financial Proposals for a Transaction Advisor.
After that, six firms were invited to submit Request for Proposals (RFP), but only five firms submitted Technical and Financial Proposals.

SEM Capital charged lowest amount
SEM Capital proposed the lowest amount of $491,986, followed by PwC with $582,403, EY with $696,140, Deloitte and Touché with $514,197, and KPMG with $1.3 million ($1,363,000).
After detailed Technical and Financial Evaluation, SEM Capital emerged as the most competitive and was therefore selected as the Transaction Advisor.

SEM Capital
SEM Capital then led a consortium of four firms, bringing legal, asset valuation, and hotel expertise on board.
The consortium handled the valuation of the six hotels across three regions, helped SSNIT prepare all the documents for the selection process, and undertook due diligence, setting up the data room for potential bidders.
The $491,986 fee charged included fees for the four firms, including SEM, for the consultancy work done relating to six hotels across three regions and shared between four firms.
To date, SEM has been paid 80% of the amount, with the final payment due on completion of the transaction.

Procurement process for strategic investor
From the documents, the independent Transaction Advisor guided the selection of a Strategic Investor.
Advertisements for an Expression of Interest (EOI) for a Strategic Partner for SSNIT Hotels were placed in the Daily Graphic on February 3, 2022, and in the Ghanaian Times on February 7, 2022.
The advertisement was also published in the Economist Magazine on February 26, 2022.
A total of nine companies responded to the advertisements by submitting proposals by the March 23, 2022 deadline.

Entity Tender Committee’s recommendation
The Entity Tender Committee (ETC), on May 25, 2022, considered the evaluation report on the EOI and approved the recommendation to invite the six firms that qualified in the evaluation of the EOI to submit Technical and Financial Proposals for Private Participation in SSNIT Owned Hotels.

Bidding firms
These firms were Rock City Hotel Limited, Yaw Addo Development, Spartan-Ives, Temple Investments, Westridge Developers Ghana Limited, and Luxor Hotels Limited.

6 hotels grouped into 3 lots
The six hotels were grouped into three lots: Lot 1 (Labadi Beach Hotel and La Palm Royal Beach Hotel), Lot 2 (Ridge Royal Hotel and Elmina Beach Resort), and Lot 3 (Busua Beach Resort and Trust Lodge).
Based on the RFP, no bidder was allowed to become the Preferred Bidder for more than two Lots.
Rock City bid for all the six hotels and were the only bidders for Lots 2 and 3.
Rock City submitted the best and strongest technical and financial proposal among those received.
Rock City was the best Bidder for all Lots and chose Lots 1 and 2 as their preferred Lots.
Consequently, Rock City started negotiation with SSNIT to buy a 60% stake in each of the four hotels (Labadi Beach Hotel, La Palm Royal Beach Resort, Ridge Royal Hotel, and Elmina Beach Resort).

Bids for Busua, Trust Lodge not successful
Given the criteria in the RFP, bids for Busua Beach Resort and the Trust Lodge were considered unsuccessful and were not covered in this process.
The negotiation process has not yet been concluded.

Valuation and bid results
The hotels were valued independently by the transaction advisor, who brought in a reputable specialist firm.
The valuation methods considered were Replacement cost basis, going concern basis, and the Price of Recent Investment methodology.

Price of Recent Investment
The Price of Recent Investment was recommended as the most appropriate methodology, valuing the hotel based on recent international transactions of hotels in the same category or with similar star ratings.
This is done on a price-per-room basis or what is called a price-per-key basis.
On that basis, the total bid by Rock City for the four hotels was above the valuation placed on the hotels.
Rock City’s total bid for 60% was $61.2 million compared to the total value of $59.1 million.
Rock City’s bids offered for Lot 1 (Labadi Beach Hotel and La Palm Royal) were more than the combined bid of the other two bidders and more than the valuation placed on the 60% stake in the hotels by the transaction advisor.
Rock City’s bid for Lot 2 (Ridge Royal Hotel and Elmina Beach Resort) was the only bid received. Similarly, that for Lot 3 was the only bid received.
The documents also show that five of the hotels have not paid the debt owed SSNIT to date.
They have not paid dividends in the past five years.
Dividends are often expected by shareholders as a reward for their investment in a company.

The hotels can’t fund maintenance capex
With the exception of Labadi Beach Hotel, none of the hotels can fund maintenance capex, and the additional periodic significant investment capex needed.

Labadi GH₵48.1m dividends in 5 years
Documents revealed that only Labadi Beach Hotel has paid a total of GH₵48.1 million (GH₵48,128,821) in the last five years.
The rest—La Palm Royal Beach Hotel, Elmina Beach Resort, Busua Beach Resort, Ridge Royal Hotel, and Trust Lodge—did not pay any dividends during this period.
More disturbing is the fact that SSNIT made total payments, including shareholder loans of GH₵233.8 million in respect of La Palm, Elmina, and Busua.
However, the Trust has made no return on equity in the form of dividends on this amount, and none of the loans have been serviced.
The average five-year profitability of the six hotels is as follows: Labadi Beach – GH₵18 million (GH₵18,055,626), La Palm Royal Beach – GH₵6.7 million (GH₵6,750,751), Ridge Royal – GH₵5 million (GH₵5,010,852), Elmina Beach – GH₵740,604, Trust Lodge – GH₵97,973, and Busua Beach – GH₵32,268.

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