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. Last Updated: 07/27/2016

St. Pete Sells Stake in Europe Hotel

MTThe St. Petersburg city government has reportedly sold its 40 percent stake in Europe Hotel to GHE Holding for around $1 million.
ST. PETERSBURG -- The St. Petersburg city property committee has announced that it is selling its stake in the Grand Hotel Europe to another major shareholder for around $1 million.

The city agreed to sell its 40 percent stake in Europe Hotel, the firm that owns and manages the Grand Hotel Europe, on the condition that the company's $60 million in debts be restructured.

The five-star hotel, located on the corner of Nevsky Prospekt and Mikhailovskaya Ulitsa, reopened in 1991 following major renovations.

Europe Hotel was founded in 1989. At that time, it was 54.4 percent owned by the city property committee; 30.5 percent by a Swiss company, GHE Holding; and 15 percent by Intourist Holding Company.

Following a share issue in 1995, GHE Holding increased its stake to 48.5 percent and became the largest shareholder. The city reduced its stake to 40.4 percent.

According to a source in Europe Hotel, who asked not to be named, the shares were recently redistributed, and now GHE Holding owns a 30 percent stake; a Cypriot firm, Mir Hotels Ltd., owns 19 percent; and Liechtenstein-based North Western Tours holds 11 percent.

At a news conference late last month, Lyudmila Kuleshova, director of the city property committee, said the city's stake in the hotel was offered to shareholders for 33.9 million rubles ($1.07 million). Kuleshova said the money has already been paid to the city, but she declined to name the buyer.

David Simons, a spokesman for North Western Tours, said GHE Holding had bought the stake, but the company could not be contacted for comment.

Kuleshova said putting Europe Hotel in private hands would considerably ease the process of restructuring the hotel's debts.

Simons said the hotel's debts to Russian and Western banks amount to $60 million. "The shareholders will have more obligations regarding the debt, but they'll also have more business opportunities," he said.

"The market price for the stake is more than 500 million rubles, but if the buyer also takes on the debts, that changes the situation," said Sergei Kovalyov, executive director of InterConsult consulting firm.

Kovalyov said the debts have been building up since the Soviet era and include the cost of the hotel's reconstruction, as well as $25 million in fines imposed by the local tax authorities for infringements of currency-exchange legislation in the mid-1990s.

"The sale of the stake to one of the shareholders is a good thing," Kovalyov said, adding that the city had not been an efficient manager.

The Nevskij Palace Hotel, which was also co-owned by the St. Petersburg city government, has also had difficulties covering its more than $100 million reconstruction bill.

The city property committee sold its stake in the Nevskij Palace to Malta-based Corinthia Hotels International, which also took on the obligation of restructuring the hotel's debts.