Privatization2019: what’s behind the President Hotel (Kyiv) façade?
29 January 2019
Igor Mazepa comments “special features” of President Hotel (Kyiv)
Concorde Capital is currently fulfilling its responsibility as the investment adviser for the first state asset to be sold as part of the Big Privatization based on the new progressive law. The President Hotel (Kyiv) – and two other assets (the Krasnolymanska mine and Indar pharmaceutical company) for which Concorde Capital was selected as investment adviser – should be privatized in the first half of 2019, in accordance with the government’s obligations in its IMF loan agreement. In not fulfilling these obligations, Ukraine would be weakening its negotiating position with the IMF, which we wouldn’t want in the least.
It’s not a secret to anyone that after our victory in the competition to select advisers in 2018, we confronted a problem, as had several of our colleague-consultants, including the Big Four auditors. One of our “competitors” challenged the competition’s results in court. Judging by how judicial proceedings occur, and the hearing will be repeatedly postponed for various reasons, I have every basis to believe that the main goal of these complaints is a banal dragging out of the privatization process.
And until the State Property Fund attempts to unfreeze the process of preparing five assets for privatization on appeal, including the Krasnolymanska mine and Indar, we are actively preparing the President Hotel (Kyiv) for privatization. It looks as though it will become the first asset put to the test under the new privatization process. The first formal report on the work we’ve done will be on the table of State Property Fund officials in the next few days.
What have we accomplished already?
We are currently completing the first of four stages in preparing the privatization of the President Hotel (Kyiv) stipulated by our agreement with the State Property Fund.
This stage involves the collection and analysis of information about the joint stock company. In theory, this is the simplest of stages, but one of the most important since the very completeness of information that we’re able to collect (“able” is the key word here) will determine the success of the subsequent stages. As well as determine the success of all of our work that should be completed with the state’s sale of corporate rights in the joint stock company to the new owner.
Drawing preliminary conclusions from the first stage, I should note that not everything occurred so smoothly.
Firstly, we gained the “green light” for access to information about the state enterprise only on Dec. 6, which is 22 days from the start of our consultation agreement with the State Property Fund. This is quite a significant delay considering that we have been allocated 90 days for the entire process of preparing the asset for privatization. In this case, we are hoping for the understanding of the client – the State Property Fund – and gaining its agreement in extending the term for fulfilling our project, which we requested in our letter to the fund.
Secondly, the fullness of information about the asset for privatization, which we received through official channels, leaves much to be desired. As of the present day, we have not received from the President Hotel (Kyiv) even half of the requested information needed for analysis. Of course, the volume of information that we have today is quite significant but largely consists of information that we gained from various open and non-public sources. But we hope that in the near future we will gain a more complete set of documents by official means. Nonetheless, the information at our disposal is already enough to draw conclusions about the attractiveness of our asset for potential buyers.
What did we find out about the President Hotel (Kyiv)?
The most “special feature” of our privatization asset with the otherwise bold name of President Hotel (Kyiv) is the very fact that the President Hotel (Kyiv) private joint stock company isn’t involved in the hotel business. Absolutely not at all. As a matter of fact, back in 2009, the state company rented the entire hotel complex (including the hotel building itself and surrounding territory) to a private firm for 25 years. This is a private firm that is engaged, in essence, in the hotel business involving a state enterprise. So 2009 is renown not only for the surprising natural gas contract. I’ll also note that there are more than enough “special features” in the remaining companies, whose sale we are aiming for this year with assistance from the State Property Fund. But we will discuss that at a later time.
Therefore, the main “asset” of the President Hotel (Kyiv) state company is its rental agreement. And the company’s main source of revenue is rental payments from the hotel’s private operator. Interestingly, even before we had the agreement in our hands, we expected even worse finances with rental payments.
Our legal partner Redcliffe Partners is currently studying this rental agreement in detail, particularly the possibility of its termination. Our goal is to include in the privatization competition not the right to own the lease, but the entire hotel business. Once receiving the detailed analysis of the rental agreement from a competent legal company, we will draw our conclusions on what we will be selling exactly.
At that point, the sales strategy that we will present to the State Property Fund will crystallize itself and the field of potential competitors to acquire the given asset will become better understood.
Commented Igor Mazepa the current situation with the President Hotel (Kyiv) privatization for Economichna Pravda https://www.epravda.com.ua/columns/2019/01/29/644755/
Concorde Capital is currently fulfilling its responsibility as the investment adviser for the first state asset to be sold as part of the Big Privatization based on the new progressive law. The President Hotel (Kyiv) – and two other assets (the Krasnolymanska mine and Indar pharmaceutical company) for which Concorde Capital was selected as investment adviser – should be privatized in the first half of 2019, in accordance with the government’s obligations in its IMF loan agreement. In not fulfilling these obligations, Ukraine would be weakening its negotiating position with the IMF, which we wouldn’t want in the least.
It’s not a secret to anyone that after our victory in the competition to select advisers in 2018, we confronted a problem, as had several of our colleague-consultants, including the Big Four auditors. One of our “competitors” challenged the competition’s results in court. Judging by how judicial proceedings occur, and the hearing will be repeatedly postponed for various reasons, I have every basis to believe that the main goal of these complaints is a banal dragging out of the privatization process.
And until the State Property Fund attempts to unfreeze the process of preparing five assets for privatization on appeal, including the Krasnolymanska mine and Indar, we are actively preparing the President Hotel (Kyiv) for privatization. It looks as though it will become the first asset put to the test under the new privatization process. The first formal report on the work we’ve done will be on the table of State Property Fund officials in the next few days.
What have we accomplished already?
We are currently completing the first of four stages in preparing the privatization of the President Hotel (Kyiv) stipulated by our agreement with the State Property Fund.
This stage involves the collection and analysis of information about the joint stock company. In theory, this is the simplest of stages, but one of the most important since the very completeness of information that we’re able to collect (“able” is the key word here) will determine the success of the subsequent stages. As well as determine the success of all of our work that should be completed with the state’s sale of corporate rights in the joint stock company to the new owner.
Drawing preliminary conclusions from the first stage, I should note that not everything occurred so smoothly.
Firstly, we gained the “green light” for access to information about the state enterprise only on Dec. 6, which is 22 days from the start of our consultation agreement with the State Property Fund. This is quite a significant delay considering that we have been allocated 90 days for the entire process of preparing the asset for privatization. In this case, we are hoping for the understanding of the client – the State Property Fund – and gaining its agreement in extending the term for fulfilling our project, which we requested in our letter to the fund.
Secondly, the fullness of information about the asset for privatization, which we received through official channels, leaves much to be desired. As of the present day, we have not received from the President Hotel (Kyiv) even half of the requested information needed for analysis. Of course, the volume of information that we have today is quite significant but largely consists of information that we gained from various open and non-public sources. But we hope that in the near future we will gain a more complete set of documents by official means. Nonetheless, the information at our disposal is already enough to draw conclusions about the attractiveness of our asset for potential buyers.
What did we find out about the President Hotel (Kyiv)?
The most “special feature” of our privatization asset with the otherwise bold name of President Hotel (Kyiv) is the very fact that the President Hotel (Kyiv) private joint stock company isn’t involved in the hotel business. Absolutely not at all. As a matter of fact, back in 2009, the state company rented the entire hotel complex (including the hotel building itself and surrounding territory) to a private firm for 25 years. This is a private firm that is engaged, in essence, in the hotel business involving a state enterprise. So 2009 is renown not only for the surprising natural gas contract. I’ll also note that there are more than enough “special features” in the remaining companies, whose sale we are aiming for this year with assistance from the State Property Fund. But we will discuss that at a later time.
Therefore, the main “asset” of the President Hotel (Kyiv) state company is its rental agreement. And the company’s main source of revenue is rental payments from the hotel’s private operator. Interestingly, even before we had the agreement in our hands, we expected even worse finances with rental payments.
Our legal partner Redcliffe Partners is currently studying this rental agreement in detail, particularly the possibility of its termination. Our goal is to include in the privatization competition not the right to own the lease, but the entire hotel business. Once receiving the detailed analysis of the rental agreement from a competent legal company, we will draw our conclusions on what we will be selling exactly.
At that point, the sales strategy that we will present to the State Property Fund will crystallize itself and the field of potential competitors to acquire the given asset will become better understood.
Commented Igor Mazepa the current situation with the President Hotel (Kyiv) privatization for Economichna Pravda https://www.epravda.com.ua/columns/2019/01/29/644755/