Hotel and gaming group Sun International has become the latest South African business to pull out of Nigeria because of weak economic growth and clashes with regulators and shareholders in the west African country.
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 (TCN), which owns and operates the 5-star Federal Palace Hotel in Lagos.
Sun International, which also reported on Monday a 20 percent fall in diluted adjusted headline earnings per share (AHEPS) to 628 cents for the year to June, said The Federal Palace had been hit by slow economic growth, low oil prices, the threat from militant group Boko Haram and a weakening naira.
“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.
“Continued setbacks in Nigeria as well as the ongoing shareholder dispute have frustrated all attempts to develop and improve the property,” it added.
Sun International bought a 49 percent stake of the Nigerian Stock Exchange-listed TCN in 2006, becoming the largest single shareholder. In recent years, Sun has been drawn into a dispute within its fellow shareholder, the Ibru family. The company’s decision to exit Nigeria follows food and clothing retailer Woolworths and Tiger Brands, which sold its loss-making Nigerian arm to Dangote Industries. 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.
Analysts said Sun International’s dispute with fellow investors was at least as important in its decision to leave.
“They are in a way stuck in a problematic arrangement on the property and it’s been very difficult for them to create value there. It certainly makes sense for them to reduce exposure to Nigeria,” said Avior Capital Markets analyst De Wet Schutte.
“Nigeria is a difficult place to build a business.”
CEO Graeme Stephens said the exit could take a year or two, and the company was no longer committed to expanding in Africa.
“We’ve been strategically exiting Africa for a couple of years and what was left was Nigeria. We’re not looking anywhere else in Africa,” Stephens told Reuters, adding the company would focus on growing its Latin America business.
In June, Sun said it was disposing its remaining minority interests in Zambia, Botswana, Namibia, Lesotho and Swaziland to Minor International Public Company. Shares in Sun International were down 0.47 percent by 1139 GMT. Reporting its results, the company said poor economic conditions in South Africa resulted in revenue growth at casinos of only 0.8 percent to 7 billion rand ($515 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,” Stephens said.
The South African Reserve Bank expects the economy to flatline this year, due to a drought and falling commodity prices.