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Transcorp sees profit exceeding turnover by 2017 as IPO over-subscribed

Transcorp Hotels plc will see its gross profits exceed current turnover in three years as it rides a wave of growth in Africa’s largest economy.

The company’s N8 billion initial public offering (IPO), currently open but set to close on October 17, is also becoming oversubscribed, according to Valentine Ozigbo, chief executive officer, in an October 3 interview with BusinessDay in Lagos.

“The company will be growing very fast in the next couple of years and this will obviously be positive for capital appreciation and dividend payouts for our shareholders,” Ozigbo said.

“Our current growth assumptions are conservative and we see a growing demand for hotels, especially in the under-served Lagos market,” he added.

Transcorp Hotels accounts for about 40-45 percent of parent Transnational Corp. of Nigeria plc group revenues of N21.21 billion for the six-month period ended June 2014.

The company plans to invest the proceeds of the IPO into a series a five-star, upper-market and middle-market properties the first of which will be two new hotels in Lagos and Port Harcourt at a cost of $140 million and $100 million, respectively.

“The designs for the 300-room Lagos hotel are done and we have just received approval from the state for construction to begin. We are hoping for approval for Port Harcourt to come by year end,” said Ozigbo.

Both hotels which are scheduled to commence operations by 2017 will be operated by Hilton, Ozigbo said.

The status of Abuja as Nigeria’s political capital where Transcorp has its flagship Hilton property and the lack of true five-star quality hotels in Lagos will help mitigate the cyclicality of the business and recent strong competition, according to Ozigbo.

Hilton Worldwide Holdings Inc., the world’s biggest hotel chain, Radisson Hotels International Inc. and InterContinental Hotels Group plc are all expanding in Nigeria to take advantage of booming business travel and an economy that is growing faster than their domestic markets.

Marriott International Inc. may build 40 to 50 hotels in Nigeria, said Alex Kyriakidis, the chain’s president for the Middle East and Africa.

The plan is to add 10,000 hotel rooms apiece in Africa’s biggest economy, targeting “super growth” based on economic potential and tourist attractions, Kyriakidis said in a recent interview.

“As Nigeria’s economy powers on, the demand for hotel rooms is going to be substantially greater,” he said.

Security concerns in Nigeria, triggered by a series of deadly bomb attacks by Islamist rebels, won’t deter Marriott from further investment in the country as the company is planning for the long term, Arne Sorenson, CEO, said in June.

Transcorp Hotels is selling 800 million shares at N10 each, with UBA Capital acting as the lead issuer. The company has 7.9 billion shares outstanding, giving it a market value of N80 billion.

The Nigerian economy will expand at 7 percent this year, according to the World Bank in its 2014 Nigeria Economic Report.

Transcorp plans to build a 5,000-capacity multipurpose convention and conference facility in Abuja, for which construction will commence soon.

“There is the need for Abuja to become a true conferencing centre in Africa,” Ozigbo said.

Nigeria is the most populous country in Africa with about 170 million people and the biggest oil and telecoms market.