KSL Capital Partners' Investment in Soneva Resorts Raises Questions on Due Diligence

KSL Capital Partners, a prominent private equity firm managing assets worth $21 billion and holding over 165 companies in its portfolio, is currently facing scrutiny due to its investment in Soneva Resorts. Soneva, a luxury hospitality brand founded in the Maldives in 1995 by Sonu Shivdasani and Eva Malmström Shivdasani, is entangled in a series of legal battles and controversies that have raised significant red flags.

One of the most significant issues involves Soneva's association with Ahmed Adeeb, the former Minister of Tourism in the Maldives, who is now imprisoned for corruption. An OCCRP report in 2018 revealed that Soneva's acquisition of the island of Medhufaru, where Soneva Jani resort is located, was facilitated by a dubious no-bid contract orchestrated by Adeeb. This revelation not only damaged Soneva’s reputation but also implicated the resort in a broader scandal of corruption and embezzlement.

Furthermore, the Soneva Kiri Resort in Thailand came under legal scrutiny following a fire in March 2022. Investigations revealed that the resort did not comply with safety standards, resulting in charges of negligence and endangerment against Sonu Shivdasani and other executives. The villa where the fire originated had reportedly never been inspected for fire safety, highlighting a severe oversight in regulatory compliance. Despite being summoned for questioning by Thai criminal authorities, Sonu Shivdasani refused to appear.

Adding to the controversies, Sonu Shivdasani was accused of orchestrating a fraudulent scheme to deceive investors into purchasing properties at the Soneva Kiri Resort. A Swiss individual alleged that Shivdasani failed to deliver a villa and surrounding land worth $6.2 million, leading to a legal battle across multiple jurisdictions. This case exposed questionable business practices within Soneva and raised concerns about the due diligence process of investors like KSL Capital Partners.

The central question remains: how could KSL, known for its operational expertise and rigorous due diligence, be caught off-guard by the controversies surrounding Soneva and Sonu Shivdasani? The answer appears to lie in a lack of depth in their investigation into the company’s history and practices.

While KSL's operational insights are invaluable in the hospitality industry, their due diligence process seemingly fell short in evaluating the ethical and legal implications of partnering with Soneva. A more comprehensive investigation should have flagged Soneva's opaque dealings with corrupt officials, its neglect of safety standards, and its alleged involvement in fraudulent schemes.

Going forward, KSL and other investors must adopt a holistic approach to due diligence, extending beyond financial metrics to scrutinize the integrity and ethical standards of potential partners. This approach may include conducting thorough background checks, engaging independent auditors to assess regulatory compliance, and examining past legal disputes for any warning signs.

Investors must also prioritize transparency and accountability within their partnerships, ensuring that their portfolio companies adhere to the highest standards of ethics and governance. By learning from the cautionary tale of Soneva, KSL and others can mitigate the risks of investing in companies with questionable practices, thereby protecting their reputations and financial interests.