Банкеръ Weekly



The owners of hotels at the Varna resort Sts. Constantine and Helena alramed that they did not know what would happen with the land on which their establishments had been built, after 72% of the seaside resort's stocks were put up for public sale. Lyubomir Zhivankin, owner of Bulflex EOOD - Sofia, who bought the Koral hotel as a self-contained part of Sts. Constantine and Helena AD under a privatisation contract dated October 21, 1999, closed with the them ministry of trade and tourism, the provisions of the agrement were not observed. Under the contract, the State undertook a commitment that after the resort's Building and Planning Scheme (BPS) became effective, it would sell the land beneath and around the purchased hotels to their new owners. Sts. Constantine and Helena's BPS became effective on August 24, 2001, but due to lack of initiative on the part of the State to honour its commitment, on November 16, 2001, Koral's owner appealed to the resort's management for buying the land. The company's Board of Directors made a decision for its sale on February 15, 2002, setting a price of USD 18.62/sq.m, envisaging a deferred payment within five years with an initial installment amounting to 30% of the entire price. In order to fulfill this decision, however, PA's approval is necessary and it has been remanded in due time. After a long period of silence on May 8, 2002 PA'a Executive Director Apostol Apostolov sent a stance in written to the Ministry of Economy, reading that it was not expedient to sell long-term assets of companies with more than 50% state participation. Thus, without any further explanations, the State practically refused to fulfill its commitment under the contract to sell the land on which the privatized establishments at Sts. Constantine and Helena were built. Following the sharp reaction of hotel owners who have closed similar contracts as that of Bulflex EOOD, the PA permitted the purchase of the land beneath and around the establishments, but at different terms from those set by the resort's management in February 2002. The PA fixed a price of BGN108/sq. m, and the term for payment was set at 13 days after the date of notification, which the owners received on June 5, 2002. This means that the money had to be paid by June 24, 2002. It was not explained to us why the price of 1 sq. m was hiked three-folf within three months, neither why we were given such a short term to pay the price, at that without any possibility for a deferred payments, hotel owners commented. We cannot collect money from sales, get a bank credit, or rely on money from last year, because we have already invested our funds in preparations for the present holiday season, Mr. Zhivankin explained to the BANKER weekly.Anyway, after the protests of hotel owners, the PA allowed a defrred payment of the price within five years, and the term for closing the deals was extended by 14 working days till July 12, 2002. Facing a danger thta somebody else could buy the land by offering higher prices, hotel owners are ceasing their protests, paying, and getting muniments.It was only this week that we understood why all this uphill work was for, Mr. Zhivankin said, pointing to decision No 485, dated July 15, 2002, of the Council of Ministers, by which the slated for privatisation resort Sts. Constantine and Helena was included in the list of commercial companies, in whose sale non-cash instruments of payments are admitted. The company's shares are to be put up for sale on the Bulgarian Stock Exchange - Sofia (BSE-Sofia) by the year-end. In the words of hotel owners, the deal has been prepared for a certain buyer. Judging from the fact that the projected deferred payment of the land has not been agreed to the benefit of the State budget, but in favour of the commercial company Sts. Constantine and Helena, it turns out they are right. According to the hoteliers, this means that the future owner of the resort's infrastructure will have a guaranteed annual net income of BGN500,000. The best part for the future owner is that there is no mechanism, obliging him to maintain the infrastructure. The buyer won's sign a contract. He will simply acquire shares worth 72% of the company's capital and he could do anything with the company, even wind it down and sell off its assets at a price much higher than the price of acquiring it by non-cash instruments of payment.Twenty five per cent of the resort's shares have already been sold against vouchers in mass privatisation, and 3% have been set aside for satisfying restitution claims.All hotel owners at Sts. Constantine and Helena, who complained in front of the BANKER weekly, are adamant that the deal is being prepared especially for the President of MG Corporation Iliya Pavlov.The way, chosen for the divestment of Sts Constantine and Helena, is the most transparent method for its quick and efficient privatisation, Lyubomir Ckahurov, Director of Capital Markets in the Ministry of Economy, and Chairman of the leisure industry company's Board of Directors, said on July 20 at the general meeting of its shareholders. He doesn't know yet when the shares of Sts Constantine will be offered for sale on the BSE-Sofia. Meanwhile, the general meeting reappointed Mr. Chakurov as Chairman of the company's BoD. The managers of Sts Constantine and Helena reported an accounting profit of BGN184,000, proceeds of BGN1,122,000 and expenses of BGN1,126,000 for 2001. However, BoD's Chairman pointed out that the company was improving its financial performance this year. Mr. Chakurov pointed as an example four sales of land, totaling 17 dca, beneath the already privatized establishments of the resort. This is the land beneath and around the hotels Koral and Estrea, the confectionary Hawai, and the Bureau for Toursit Services, whose owners complained from the pressure excercised on them. The land was sold at BGN108/sq. m. In 2000 the company sold 44 dca of land in the resort at less than USD20/sq. m. As far as the appetites of MG Corporation to the shares of Sts. Constantine and Helena are concerned, they have been officially announced long ago. Being the largest investor in the resort, we are not indifferent to what will happen here. We have ideas about its development and we wish that it would be an ecologically protected area, but we cannot yet say how many shares we would buy, Nelly Sandalska, Executive Director of Balkantourist (which is also part of MG Corporation) admitted to the participants in the general meeting of Grand Hotel Varna a month ago.

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