Legacy challenges African Sun contract cancellation

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By Alois Vinga

THE Legacy Hospitality Management Services (LHMS) has challenged the termination of a contract by African Sun Limited signalling what may become a long legal battle in the country’s hospitality sector.

In 2015, African Sun entered into an agreement which gave LHMS rights to run hotels which include Elephant Hills in Victoria Falls, Monomotapa in Harare, Troutbeck Resort in Nyanga, Hwange Safari Lodge and the Kingdom at Victoria Falls Hotel among others.

However, following some disagreements, African Sun terminated the LHMS contract after an arbitral award’s ruling in favour of the move.

But African Sun managing director, Ed Shangwa recently told shareholders that LHMS has appealed against the ruling in favour of the contract’s cancellation.

“On April 24 2019 an arbitral award was handed in favour of proceeding to terminate the agreement which we have proceeded to give effect to. Legacy have since applied to have this matter set aside and the legal processes are ongoing in this regard but in the meantime, we have taken over the management of our hotels,” he said.

Shangwa said since the takeover, the hotel group has restructured and rebranded the hotels under the operating segments of Country and City Hotels, Resort Hotels, Partnerships and Sun Leisure.

Asked to reveal the reasons behind the cancellation of the agreement, Shangwa declined to comment further citing that the matter was still before the courts.

The placement of the hotels under LHMS was speculated by market watchers as pushed by African Sun’s controlling shareholders, Brainworks Capital Management (BCM).

The private equity investment and advisory firm, BCM had boosted its shareholding in African Sun to 55, 11 % after the closure of its mandatory offer to the hotelier’s minority shareholders in May 2015.

From the period beginning January to May 2019, African Sun revenues amounted to ZWL$48.3 million split as 56% and 44% between domestic and foreign respectively.

Occupancy for the period was 43% registering a decline by 10% compared to 53% recorded last year.

In the period under review, domestic market demand slumped 11% owing to a depressed economic environment which is characterised by a slowdown in economic activity, spiking inflation, erosion of real income, fuel and foreign currency shortages.