Middle Eastern shakeout

Hospitality companies in the Middle East are looking to scale up and merge, as they prepare to take advantage of the post-pandemic landscape, and face their countries’ tourism growth plans.   

In Abu Dhabi, sovereign wealth fund ADQ has proposed combining its hotel and events businesses, to create a USD5.4bn group. The aim would be to enjoy operational synergies, and to better support the emirate’s diversification efforts.  

In a statement, the company said the move would “create one of the largest hospitality, events, and catering powerhouses in the region”. 

ADQ has interests in a portfolio of hotel assets under the Abu Dhabi National Hotels Company. The company owns 12 hotels in the Middle East, and manages a further four properties under the Al Diar brand. The events business, ADNEC, holds convention centres in Abu Dhabi, Al Ain and London, as well as linked hotels and catering businesses. Combined, the pair would have a total of 28 hotels as well as the events assets.  

Between them, the groups own properties trading under a range of international brand flags, including Aloft, Anantara, Andaz, Le Meridien, Ritz Carlton and Sofitel.  

The proposed amalgamation would see ADQ transfer its shareholding in the exhibitions business, to the hotel business. In return, ADNH would issue an instrument converting into ADNH shares; after completion, ADQ would hold 54.98% of the combined entity.  

Shares in ADNH, which are listed on the Abu Dhabi exchange, rallied 40% in May as hopes grew of a resurgence in the tourism economy. ADNH reported first quarter net profit up 154% year on year. Abu Dhabi has a number of major tourism projects in the pipeline, including Al Qana, the National Aquarium, Sheikha Fatima Park, Yas Bay and The Waterfront – all aimed at improving the overall attractiveness to tourists and leisure visitors.  

ADQ’s chief investment officer for alternative investments and M&A, Mansour AlMulla, explained the rationale: “This proposed offer provides a unique opportunity to create value by bringing together two major players in Abu Dhabi’s hospitality and events sector. The combined company would benefit from increased scale, new revenue opportunities, and an enhanced capital structure that will position it well for future growth.” 

In Saudi Arabia, two locally listed companies have announced they are in discussions about a potential merger. The move comes as the country looks to move forward with its Vision 2030 plan to turn tourism into a business sector second only to oil, aiming to grow it from 3% to 10% of the country’s economy. 

Dur Hospitality Co and Taiba Investments are in merger talks, with the potential to create a USD2.4bn conglomerate. The pair both have a major shareholder in Aseelah Investment.  

Taiba has interests across a range of real estate and tourism assets. It recently announced its intention to acquire Centro branded hotels in Riyadh and Jeddah, for a combined SAR328m. And in February, it took over direct management of two hotel assets in Madinah, cancelling a six year old management agreement with Millennium & Copthorne. 

Dur is a developer and manager of hotels in the Kingdom, but also with broader hospitality interests, and a travel agency. It currently has a Saudi portfolio of more than 5,000 rooms, and recently revealed plans to add more than 3,400 rooms to its portfolio. At the end of 2020, it launched the Holiday Inn in Jubail Industrial City. Alongside Marriott and IHG branded properties in the Kingdom, it has its own Makarem and Dara brands, and holds a major stake in Shada Hospitality.  

In mid-2020, the country’s ministry of tourism launched a Tourism Development Fund, seeded with an initial USD4bn that aims to draw in further private and investment bank funding. Subsequently the fund has launched three products to encourage investors, having set out seven destination areas and identified more than 100 projects for development.  

The aim is to encourage small and medium sized businesses to invest, alongside larger partners. “TDF’s primary role as the tourism investor’s partner is to provide financing solutions that overcome barriers to mobilise investments and help investors achieve their goals,” said CEO Qusai Al-Fakhri: “An attractive investment environment enhances investors’ appetite for tourism projects, which in turn helps drive the tourism sector.”  

Riyad Bank is supporting the Tourism Partners programme. CEO Tareq A Al-Sadhan commented: “The programme aims to further strengthen the kingdom’s position as an investment and business hub, improving the kingdom’s position on global ease of doing business rankings.” 

It was in 2008 that the Abu Dhabi investor acquired London’s Excel exhibition centre, and at the time the GBP321m deal appeared to herald other international acquisitions in the same sector.  

More recently, the Excel centre has become known as a temporary hospital site, prepared to meet an expected peak of Covid-19 patients in the London area. The site is currently consulting on a further expansion that would increase event floorspace at the venue by 25%, which ADNEC is ready to fully fund. The venue’s CEO Jeremy Rees said there is strong demand for the location to host world-leading events: “Prior to the pandemic we were attracting four million visitors each year, including 25% of London’s total inbound business tourists, and generating an economic impact of around GBP4.5bn for the London and UK economies.” 

HA Perspective [by Chris Bown]: The Middle Eastern entities that have sat and watched Dubai’s growth and success had already put plans in place to make tourism a key plank of their economic policy, ahead of the pandemic – and as the demise of oil revenues looks clear.  

Now, they are working out which companies can help deliver the lofty aims of the big government expansion plans.  

Saudi Arabia is three times the size of the UK, and has a range of regions with distinctly different climates – it’s not all sand and hot sun. And while those potentially attractive regions require major development, if they are to be exploited as tourism destinations, Dubai shows what can be created with the right resources. Saudi starts with a good lead on Abu Dhabi, having a solid base of visitors in the name of religious tourism, visiting the clusters of massive hotels for pilgrims adjacent to the sites in Mecca and Madinah. 

Meantime, the hotel brands are lining up, with IHG appearing to lead the march into Saudi Arabia currently. But there’s plenty of room for everyone, and it’s no longer all about trophy five star assets, as the pandemic has taught the emirates that they need to be ready to welcome everyone, when the high flyers can’t fly in. 

Additional comment [by Andrew Sangster]: The UAE dominates tourism in the Middle East, according to data from the UNWTO. In 2019, there were 21.6 million international visitors. But it’s growth rate was just 1.3%.  

In contrast, the second most visited country in the Middle East was the Kingdom of Saudi Arabia with 17.5 million visitors with a growth rate of 14.3%. Third-placed Egypt had 13 million visitors, growing 14.8% after a difficult few years. 

The Middle East as a whole is a minnow compared to Europe. Total visitor numbers are 70 million against 746 million. Admittedly, Europe benefits from seeing both Israel and Turkey included in its numbers, but neither country would radically transform the outcome to Europe’s detriment although Turkey’s 51 million arrivals would certainly help. 

The UK, which comes 10th in the world country rankings of international visitor arrivals, saw 39.4 million overseas travellers in 2019. European countries ahead of it are France, Spain, Italy and Germany as well as Turkey. 

KSA benefits from its religious tourism but is now also attempting to drive forward leisure stays. Despite its repressive laws towards women and gay people, and its prohibition of alcohol, the country has made some headway as a holiday destination.  

It is very hard to see KSA emulating the approach of Dubai, however. As well as a more tolerant attitude, Dubai has hugely benefitted from its position as a stop-off between Europe and East Asia. The opportunity seized by the Emirates airline is not easily replicable in the much geographically bigger KSA.  

In any case, KSA is seeking its own approach, building on its strengths such as unspoilt nature and rich cultural heritage. The fifth anniversary of “Vision 2030” was in April, and the press release on the anniversary noted a number of achievements in the first five years. 

As well as increasing the number of heritage sites that can be visited to 354 (from 241 in 2017) and the establishment of seven Royal natural reserves in 2018 and 2019, the easing of visa issuance has made a big difference. Rather than 14 days, tourists can now get clearance within five minutes. 

Tourism grew at 14% in 2019. This growth, and expansion in allied sectors such as entertainment, have created significant numbers of jobs. In the entertainment industry alone, more than 100,000 jobs have been added. 

Although the tone of the KSA Government’s ambition does at times sound like a cross between the Soviet Politburo and McKinsey, it contains much of what makes tourism, including the wider travel and hospitality sectors, so important. 

The 33 million population of KSA makes it by far the most significant Gulf state. This population is both a source of strength and potential instability. The Government knows that, with almost 60% of its population under 30, it has to work hard to create meaningful employment. 

Unlike the UAE and Qatar, where tourism promotion has focused on inbound guests, for KSA it is as much about domestic tourism. According to Invest Saudi, USD11bn was spent locally on tourism, culture and entertainment against USD26bn spent by locals outside the country. 

If done correctly, travel, tourism and hospitality will be integral to the transformation of KSA. With abundant capital available in the country, there is huge potential to demonstrate the positive potential of our sector. 

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