Investors do not risk acquiring Ukrainian real estate and retailers

Photo: Konstantin Melnitsky

Instability in Ukraine has scared off investors: nobody is standing in line to buy office centers, food chains and drugstores that have been put up for sale. The Russian company Hotel Development has been unable to sell its only Ukrainian asset Radisson Blu Hotel Kiev Podol for almost a year. The asset is being offered to potential buyers for US $78 mn. “The hotel is owned by us,” an employee of the company, who asked not to be named, told Capital. Financial Director of Hotel Development Aleksey Pryaslov declined to comment.

There are also no buyers for the first line of the Leonardo Business Center, for which its owner Queen Properties Ukraine would like to get around US $100 mn. Earlier, the development company ESTA Holding (a subdivision of SCM) was named one of the possible buyers of Leonardo. “ESTA Holding is not planning acquisitions in the nearest future and is not holding any negotiations. In the current situation, our key priority is uninterrupted functioning of our facilities and the safety of tenants,” commented the company’s press service.

The negotiations about possible acquisition of Furshet chain by Smart-Holding (develops food store chain Amstor) ended with no results. In fact the parties practically agreed on the conditions, according to an investment banker with knowledge about the course of negotiations, who preferred to remain anonymous. Capital did not manage to find out what prevented the parties from sealing the deal: co-owner of Furshet Ihor Balenko did not respond to the phone call, while a representative of the press service of Smart-Holding said they were not commenting on any negotiations.

In spring 2014 acquisition of the Donetsk-based DonElitFarm (a 36.6 chain of drugstores) by the Kyiv company Pharmastor (Apteka Dobroho Dnya (Good Day Drugstore) chain) was also disrupted, manager of one of the major drugstore chains told Capital. Director of Agency of Medical Marketing Yuriy Chertkov says that all deals on acquisition and sale of drugstore chains have been suspended.

Investors have lost interest practically in all business sectors. In Q1 2014 the total volume of transactions with Ukrainian buyers, sellers or assets dropped more than six times compared with January-March 2013 to US $441 mn, while the number of such transactions halved to only 21.

Political instability

The unstable political situation in Ukraine is one of the major reasons of suspension of transactions, assures Managing Partner at Standart NV Investment Banking Karen Chiftalaryan. “Can you imagine a foreign investor willing to invest money into a country that is going through a military conflict?” he says. Domestic investors also do not hurry to seal any new deals. Partner for corporate services at Baker Tilly consulting company Dmytro Drahun notes that Ukrainian businessmen are concentrated on their main businesses and do not risk investing into new projects. This is due to sharp devaluation of the hryvnia and a decrease in purchasing power, he says.

Project manager of PharmConsulting Ihor Khmilevskiy explains that buyers evaluate Ukrainian business cheaply – by a multiplier of 2 EBITDA, but the sellers are not ready to sell their assets at such a low price. In EU countries, the value of companies is calculated by a multiplier of 5-6 EBITDA, he says.

Investors are not coming back soon

There will not be any acquisitions in the nearest months, while mergers of Ukrainian drugstore chains are possible, predicts Khmilevskiy. Chiftalaryan believes that domestic investors will be the first to take interest in the Ukrainian assets. “For that, however, peace must be established in the east of the country,” he says, adding that the first deals could happen at the end of this year or beginning of next year, while international investors will only come a year or even year in a half after the situation in Ukraine stabilizes. Drahun believes that foreigners will start to actively invest money in local business not earlier than in three-five years.