Igor Mazepa
Founder and CEO

President Hotel (Kyiv) privatization may be limited to rental agreement expiring in 2034, adviser says

Davos, Jan. 31, 2019 INTERFAX-UKRAINE – Having been selected investment adviser for the President Hotel (Kyiv), Concorde Consulting – part of the KPMG, Marcus Bureau, and Redcliffe Partners consortium – is making every effort for the hotel complex in Kyiv’s center to be placed for direct sale, said Concorde Capital CEO and partner Igor Mazepa . However, there is a high risk that the offer will be limited to just the rental agreement

That’s the key – it’s still unknown what we will sell. It will be either a large hotel, attracting a large number of strategists and international players, or a simple rental agreement that offers a revenue stream until 2034. We will finalize our perspective in the nearest future after gaining information from our legal partners Redcliffe Partners,” Mazepa told the Interfax-Ukraine news agency at the Ukrainian Breakfast in Davos organized by the Victor Pinchuk Fund.

“We’ve already completed the legal due diligence and are completing operational due diligence. A starting price and our recommendations to the State Porperty Fund are possible based on their results,” Mazepa added.

In his column on the Economichna Pravda website published on Jan. 29, Mazepa mentioned that the State Property Fund offered access to information about the President Hotel (Kyiv) to his company only on Dec. 6, 2018, or 22 days after the consulting agreement with the fund took effect. In all, 90 days have been designated for the entire process of preparing the asset for privatization. As a result, Concorde asked the fund to extend the deadline for fulfilling the project. 

The completeness of information about the asset received through official channels leaves much to be desired, the Concorde Capital CEO said, pointing out that not even half of the requested information needed for analysis has been received from the President Hotel (Kyiv). 

At the same time, the available information is enough to draw the conclusion that the President Hotel (Kyiv) isn’t involved in the hotel business, but rather its main revenue source is rental payments from its private operator owing to a 25-year rental agreement, signed in 2009, which included the hotel itself and its surrounding territory, Mazepa said. 

“Our legal partner Redcliffe Partners is currently studying this rental agreement in detail and, in particular, the possibility of its termination. Our goal is not to limit the tender to just the right to own the rental agreement, but the entire hotel business,” said the Concorde Capital CEO. 

Meanwhile, the work of the consortium led by Concorde Capital to prepare the Krasnolymanska coal company and the Indar pharmaceutical firm – for which it was also selected investment adviser in a competition – is being blocked by court complaints filed by the tender’s loser. 

"Time and time again, the appeals are delayed. The claimants sometimes don’t show up for the hearings that they themselves initiated. It’s all rather suspicious, but that’s an issue for the government and State Property Fund since they are a side in this process. When the ball gets rolling again, we will come and honestly do our work,” said the Concorde Capital CEO. 

Regarding the four thermal power stations that the Cabinet withdrew from privatization in January this year, even though Concorde Consulting won the tender in September last year for the right to be investment adviser, Mazepa noted that the company and consortium members didn’t suffer significant losses. 

“There’s a lot of other work now,” he said. “There was disagreement between the State Property Fund and the government, and I’m very glad that it worked out the way it did and that this all surfaced before the start of the process and not at the end,” Mazepa said, referring to the government’s decision to refrain from an open sale in favor of transferring the stakes in the power stations into public ownership. 

As mentioned, Concorde Consulting – as part of the KPMG, Marcus Bureau and Redcliffe Partners consortium – won the tender in late July to become the investment adviser in the privatization of the Krasnolymanska coal company, Indar pharmaceutical firm and President Hotel (Kyiv). The approval of the first two adviser tenders is being delayed owing to court litigation between the State Property Fund and the other contenders. 

The stipulated portion of the advisers’ remuneration from the President Hotel’s privatization is UAH 1.598 mln under conditions of complete fulfillment of the agreement’s conditions, as well as an award of 2% of the value of the stake in the event of its sale, according to a government resolution gained by the Interfax-Ukraine news agency.

The President Hotel’s 2017 revenue declined 14% yoy to UAH 46.57 mln, while its profit surged 2.5 times yoy to UAH 13.43 mln, according to data in the National Securities and Stock Market Commission disclosure system. 

The private stock company’s records indicate the public signed a rental agreement with the Kvadr Construction Company, based upon which the moveable and non-moveable property, and other inventory, located at the address 12 Hospitalna Street in Kyiv is available for temporary use for 25 years, in fulfillment of the resolution on Apr. 17, 2009 of the State Affairs Administration.Kvadr Construction Company’s 2017 earnings declined 6.2% to UAH 168.64 mln, while its losses grew 5.6% to UAH 12.73 mln. 
The main shareholder in the Kvadr Construction Company is the Cyprus-based firm Fesanec Commercial Ltd., whose 91% beneficiary owner is Cypriots Tasos Panteli and Andreas Sofokleus, according to State Registry records. Another 9% belongs to the Odesa-based firm L.A.R.K., which is controlled by Boris Kaufman and the Cyprus-based firm Guajares Enterprises Ltd. 

Source: Interfax-Ukraine News Agency