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. Last Updated: 07/27/2016

Ukraina Sale Attracts 9 Bidders

MTThe city-owned Ukraina Hotel is due to be auctioned on Wednesday, with a starting price of about $151 million.
Nine companies have applied to take part in Wednesday's auction for the city's 100 percent stake in the Ukraina Hotel, Vladimir Silkin, head of the city's property department, said after a deadline for applications passed Friday.

While City Hall has refused to name the applicants, market players have linked several companies to bids, including Intourist, oil producer Russneft, vodka tycoon Yury Shefler's SPI group and the Hilton hotel group.

Silkin said that seven of the nine had already submitted their deposit of just over 800 million rubles ($27.7 million). Two more companies were due to submit the sum on Monday.

The mayor's office has refused to disclose the names of those participating until the start of the auction.

"I can only say that interest in the auction has been shown from both Russian and foreign companies," Silkin said.

Sources have linked several companies to the auction.

An application has been submitted by Intourist, which is controlled by telecoms conglomerate Sistema.

"The acquisition of the Ukraina would be in line with our development strategy, which calls for the strengthening of the company as the leader in all segments of the tourist market," said a representative of Sistema's press service.

On Nov. 17, the city authorities in charge of accepting the bids refused to take an application and documents from Ligastroiproyekt, the developer of the reconstruction of the Moskva Hotel, according to Dmitry Garkusha, the director of the company. He said he was only able to submit the application the following day in the presence of a notary.

Among the likely suspects in the bidding war for the Ukraina, market watchers have named companies close to the management of the Grand shopping center; the head of Russneft, Mikhail Gutseriyev; State Duma Deputy Iosif Kobzon; Yury Shefler, the owner of SPI; Umar Dzhabrailov's Plaza Group; the Hilton hotel group; and IPG Eurasia, which recently acquired a 25 percent stake in the Kosmos Hotel.

Russneft and SPI categorically denied rumors of their involvement. A source familiar with the Hilton group's plans confirmed that the company was interested in running the Ukraina. The others were unavailable for comment.

Ernst & Young has valued the hotel at $157 million, and First Deputy Mayor Yury Rosliak recently announced that the city was hoping to receive about $200 million from the sale. "If the auction for the Ukraina is fair, the price could reach $300 million to $350 million," Garkusha said.

The uniqueness of the hotel partly explains the high level of interest in the auction.

"The proximity to the [Krasnaya Presnya] Expocenter allows it a stable turnover in the spring and autumn months, when the demand for tour groups falls," said Marina Smirnova, deputy director of the department of valuation and consulting at real estate consultancy Colliers.

"Only three hotels in Moscow work successfully with foreigners: the Kosmos, the Rossiya and the Ukraina. Of those, the Ukraina boasts the best occupancy rates: around 75 percent."

According to the managing director of the Baltschug Kempinski, Alexander Bobyleva, $60 million to $80 million would be needed to raise the Ukraina to a four-star standard.

It would take a long time to make a return on this investment, warned Smirnova. The Ukraina is currently offering rooms at half the price of those of its closest rival, the Radisson-Slavyanskaya, a pricing policy that allows it to fill approximately twice as many rooms.

"If the price of rooms were comparable, then the occupancy at the Ukraina might fall to 35 percent to 38 percent per year. Reconstruction would deny the hotel its principal advantage -- competitive prices," said Smirnova.

The 73,251-square-meter, 1,017-room Ukraina was built in 1955.

The auction is due to take place on Wednesday, with a starting price of 4,361 million rubles ($151 million).

 The developer behind a series of gargantuan manmade islands off Dubai has been linked to a bid for the Ukraina Hotel.

Sheikh Sultan Ahmed bin Sulayem, the executive chairman of state-run United Arab Emirates developer Nakheel, was in Moscow on Friday to look into large development opportunities in the Russian capital, Kommersant reported.

The newspaper cited an anonymous source in City Hall as saying that the sheikh discussed bids for the redevelopment of the Ukraina and Rossiya hotels during a meeting with Vladimir Resin, the head of the capital's construction operations.