2003-01-23 Almost year ago the Moscow City Government enacted Decree No. 99-RR dated 05.02.02, which stipulated that it would sell off its shares in several hotel properties located in the capital. Despite this important decision, there has been little follow-up since and a lack of directive with regard to steps to be taken by buyers in completing the privatisation schemes…
With the exception of the Marriott Renaissance, in which the Moscow City
government currently owns 51 per cent of the equity shares, it is a minority
holder in other hotels, and thus cannot influence the board of director
decisions of these joint-stock companies. In this context, the decision of the
municipality to sell off its equity shares in these hotel assets did not bring
the desired results. Despite various announcement in the press, the
municipality’s offer to sell off its minority stakes in these hotels failed to
arouse the interest of potential buyers. Eventually, the city government stock
package proposal became matters of secondary importance and was soon forgotten.
But the privatisation process is far from closed. Though the city
government had made public its intent to sell off its minority shares in hotel
assets, the general level of disinterest from potential buyers originated from the
fact that the city government’s failed to set a stock price for its equity
shares. A year ago, not a single official announcement had been made in this
regard. Recently, some new indications have appeared in the media. The Russian
nickel conglomerate (Norilski Nickel), which is co-owner of hotel Baikal, an
asset which was listed for sale last year by the Moscow City Government, has
offered to sell its equity participation in the hotel joint-stock company for
$3 Mio.US, or $343/m². Norilsk Nickel’s stake in the Baikal hotel represents 65,65% of the
total equity shares in the asset.
Hotel
Baikal was built in 1976 near the northern entrance of the Russian Exhibition
Centre near ВДНХ and is composed of two buildings
with 531 beds, a multifunction restaurant, and two lounge cafes. At the current
moment, the hotel capacity stood at 393 rooms. The room tariffs varies between
$6 and $23.
The city
government currently owns 14.99% of the equity shares in this hotel. It is not
known whether the municipality will be guided by the price, when it decides to
auction off its stakes in the Baikal hotel. It is also not clear how Norilsk
Nickel has determined the price of its participation in the Baikal hotel
joint-stock venture. There are open questions as to whether the price is based
only on the value of the hotel business, on the physical shell, or on both. Up
to now, there have not been enough hotel real estate transactions to develop a
trend on sales prices. The announcement in daily newspaper “Vedomosti dated
14.01.2003 of the sale by Norilk Nickel of one of its non-core business assets
sets a precedent for more hotel transactions in the near future. As a result, demand for professional valuation services
of hotel assets in Russia will also rise, with an emphasis shifting more on the
value of the hotel business rather than just on the replacement cost of the
physical shell. In contrast to a school, a government building or a hospital, a
hotel is an income-generating asset, and thus the sales value should be placed
on its operational profitability rather than just the value of its walls.
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