20 October 2018

Rwanda: Cityblue Struggles to Keep Business Afloat in Rwanda

A Dubai-based investor with interests in East Africa is fighting to sustain business in Rwanda after its chain of CityBlue Hotel brands started flirting with liquidation over undisclosed rent arrears.

Their woes come at a time of increased appetite for foreign investments in Rwanda, leading to a possible strain on due diligence by government to ensure credibility of investors.

A liquidation request was made by their lawyers and opened under file code PST RSCOM 00875/2018/TC at the Kigali Commercial Court.

CityBlue officials declined to discuss the details of the application, but said one of the reasons was because they enforced an early termination of their lease agreement with the owner of the building that housed their Embassy Row CityBlue Hotel in Kacyiru.

But sources say that the liquidation did not target their physical assets but bank accounts.

The investors have already lost two hotels due to disputes over lease agreements with their landlords, sources add.

One of the hotels is a posh 10-bedroom hotel in Kagugu - about 25 minutes drive from Kigali and formerly known as Express CityBlue. A room here costs at least $80 a night.

Pushed out

CityBlue were pushed out of this hotel and are facing a charge by the building's owner, filed at Kigali International Arbitration Centre.

They were also pushed out of their Embassy Row Kigali Hotel -- which was their first investment in Rwanda in 2011 -- over rent increment issues and filed for bankruptcy, intended to liquidate and pay off their debts.

The hotel was renamed Iwawe Hotel in June after CityBlue was forced out.

The CityBlue brand was started in Rwanda by Dubai-based entrepreneur Jameel Verjee in 2011 and has since expanded to Kenya and Uganda, and plans to open hotels in Zambia and Tanzania.

The CityBlue investors manage the CityBlue Creekside Hotel and Suites in Mombasa, Kenya, as well as two brands in Uganda -- Urban by CityBlue and Ssanga CityBlue Hotel and Suites.

So far it speculated that the investor has pumped in millions of dollars into the business.

Mismanagement

Mr Verjee is still holding onto two other hotels, Urban Hotel in Kiyovu in upmarket Kigali, and another in Nyagatare called CityBlue EPIC Hotel and Suites, but similar concerns were raised that they are also under mismanagement pressures, credible sources told The EastAfrican.

The Nyagatare Hotel is owned by the Eastern Province Investment Corporation (EPIC) - a business consortium of investors from the eastern province of Rwanda, who sources say are not comfortable with the way that the hotel is managed.

Sources also confirmed that the investor's negotiations to take over management of Kivu Marina Bay fell flat due to disputes with the landlords of the Nyagatare hotel property.

Kivu Marina Bay is a 76 room 4-star hotel located in proximity of Lake Kivu and bordering the Democratic Republic of Congo.

According to sources in the hospitality sector, CityBlue Hotel operates under a lease agreement with its properties except the Nyagatare Hotel which is under a management contract.

"The lease agreement means that the investors have to incur all the costs and pay rent to the land proprietor, while a management contract ensures that they share costs and profits of managing the hotel alongside the land proprietor," a source said.

"It appears they were faced with big challenge with their lease agreements and accrued serious costs and debts that they could not fully take care of. Instead of incurring those heavy capital investments, it seems they chose to liquidate and pull out," a source familiar with the story said.

The CityBlue Hotels CEO Jameel Akbar Verjee downplayed the bankruptcy risks, saying that he had pulled down the liquidation request after advice from his lawyers.

"There was a commercial dispute with the former landlord which CityBlue has tried to settle amicably for more than six months. Unfortunately, this dispute dragged on and caused harm to the company. But everyone is trying to solve it with best intentions," Verjee told The EastAfrican.

"CityBlue continues its operations of Urban by CityBlue Hotel and CityBlue Epic Hotel and Suites in Nyagatare, and the brand is expanding rapidly in other countries."

A letter from KVG Attorneys shows that they were instructed to drop the liquidation request on behalf of the investor.

"Our client has instructed us not to pursue the liquidation of such legal entity and to stop all processes as the circumstances have changed and our client is no longer pursuing this option," it reads.

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