Privatization in a new way: what is behind the facade of “President-Hotel”?

Igor Mazepa commented on peculiarities of privatization of Kiev “President-Hotel”

Concorde Capital was the Advisor for the privatization of the first major government asset which will be sold under the new progressive law. PJSC “President-Hotel”, as well as two more facilities (the mine “Krasnolimanskaya” and pharmaceutical company “INDAR”), in which Concorde Capital selected investment Advisor in 2018, should be privatized in the first half of 2019 in accordance with the obligations of the Ukrainian government in cooperation with the IMF. While not fulfilling this obligation, Ukraine will weaken their bargaining position in dealing with the IMF, what we don’t want.

 

For anybody not a secret that after winning the competition for the selection of advisers we and some of our colleagues-consultants, including from the big four auditors are faced with a problem: one of our “competitors” has challenged results of competition in court. Judging by how things are trial – and meeting repeatedly transferred for various reasons – I have every reason to believe that the main purpose of these suits is to simply delay the process of privatization.

 

And while the state property Fund is trying to appeal to unfreeze the process of preparation for privatization of five objects, including the “Krasnolimanskaya” and “INDAR” we are actively preparing for the privatization of “President Hotel”. In fact, he seems to and will be the first asset, which will be tested new law on privatization. The first formal report about the done work will be on the table of officials of the state property Fund in the coming days.

What we have done?

We are now at the final stages of the first of the four stages of preparation for privatization of PJSC “President-Hotel”, under contract with the state property Fund.

 

This stage is the collection and analysis of information about the company. In principle, this is the easiest of stages, but one of the most important because it is the completeness of the information that we will be able to collect (will is a very important word) and will determine the success of subsequent phases. As well as will determine the success of all our work, which should be completed with the sale of government corporate rights in joint-stock company to the new owner.

 

Summing up the preliminary results of the first stage, I want to mention that not everything went so smoothly.

 

First, we have received approval to access information on state enterprises only on 6 December, that is 22 days later than the beginning of our Advisory agreement with the state property Fund. It’s quite a big delay, based on the fact that the whole process of preparation of object for privatization, we allocated a total of 90 days. In this case we hope for your understanding of the customer – the state property Fund and obtaining his consent to the extension of the implementation period of our project, what we asked for in our letter to the Fund.

 

Second, the completeness of information about the object of privatization, obtained from the official channels, leaves much to be desired. As of today we have not received the “President-Hotel” and half of the requested information necessary for analysis. Of course, the amount of information available to us today is quite significant, but mainly consists of information extracted from different kind of public or non-public sources. But I hope that in the near future we get a more complete package of documents is also and officially.

 

However, the information we have, is enough to draw conclusions about the attractiveness of our facility to potential buyers.

 What we learned about the “President Hotel”?

The main “highlight” of our object of privatization under the loud name the CHAO “President-Hotel” is that CHAO “President-Hotel” is not engaged in the hotel business. Absolutely not engaged. The fact that back in 2009, the public company has transferred the entire hotel complex (including the hotel and the surrounding area) in rent for 25 years to a private firm. And this private firm, in fact, engages in hotel business in a state enterprise.

 

Well, it looks like 2009 was marked by not only an amazing gas contract. I note that other companies, to help the SPF with the sale of which we hope in 2019, is also missing their own highlights. But we’ll cover that later.

 

Thus, the main “asset” of the state company PJSC “President-Hotel” – is a lease. And the main source of revenue is lease payments from the private operator of the hotel. By the way, before we got my hands on this contract, we were expecting the worst – even worse financial conditions for rental payments.

 

Today, our legal partner company Redcliffe Partners examines this lease. In particular, the possibility of divorce. Our goal is to put on a privatization tender is not the right of possession of the lease, and the entire hotel business. Having a detailed analysis of the lease from competent law firms, we will draw conclusions about what we sell.

 

At the same time and will crystallize sales strategy, we will present the state property Fund, and then it will be clear that the circle of potential bidders for the purchase of the asset.

 

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