For sale

The more interesting question is what does Equest have left to sell. The fund’s portfolio now has two large-scale holiday developments, both of them put on hold and accumulating further debt.

One of these projects is the Sozopolis luxury complex near the Black Sea resort town of Sozopol. It is almost completed, but less than 30 per cent of the development has been sold out, which makes it unsuccessful from a sales point of view. The project was funded with a 38 million euro loan from Alfa Bank, talks on the refinancing of which are now underway, Equest’s subsidiary Immofinance said.

The other project, in the village of Banya, near the Bansko mountain resort, is a much bigger problem because not a single unit has been sold. Immofinance manager Ivan Takov told Kapital that a new scheme for generating revenue has now been put in place. After the project’s hotel part is finished, the entire development would be rented out to a travel agency, which would manage it. The funds for the Banya project, 10.5 million euro, were borrowed from DSK Bank, the Bulgarian unit of Hungary’s OTP Group.

The three cinema halls that Equest bought in Sofia have also been put for sale. These are the Iztok, Urvich and Evropa Palace cinemas, which Equest bought to transform into modern office and commercial centres, but all its designs remained at the planning stage. There are, however, additional complications. Iztok’s reconstruction has been hindered by neighbours’ complaints that it would block their view.

The reconstruction of Evropa Palace has also been put on hold by the authorities, while the Urvich building has attracted little interest from investors.

Rock around neck
If there is a project that symbolised Equest’s unsuccessful business moves, that would be its investment in Novera, the company that was supposed to clean Sofia’s streets but now faces insolvency and liquidation.

Novera had 24 million euro in revenue in 2008 and pre-tax losses of close to 14 million euro, as well as total debt of 35 million euro. In 2009, the situation with Sofia’s refuse collection concession changed dramatically and Novera lost its monopoly, losing out in the redistribution of contracts, with almost nothing to show to potential buyers.   

In focus
After finalising all of its sales, Equest plans to focus on just two projects, the fund’s financial reports said. In reality, the only business that has so far generated income or Equest is its holding company TMD, which unites the Balkan business of Technomarket and Domo electronics and household appliances retail chains. Equest owns close to 62 per cent in TMD, which holds 40 per cent of the household electronics market in Bulgaria and 22 per cent in Romania. The group has registered sales worth 621.5 million euro in 2008 and 444.3 million euro in 2007. TMD has managed to keep a high level of operations but after Equest bought its stake in the company, part of the acquisition price was transformed into TMD debt.

The other project in Equest’s sights is the SuperBorovets ski resort project in Rila Mountain, which was envisioned to become a mega-winter resort. The problem is that nothing of the kind has happened and that is unlikely to change. The global economic crisis and the downturn in the real estate market has made such investments risky and the Omani investor seems reluctant to go ahead with them.  

Speak well or speak nothing
The transformation of the once active investor into a more active seller has its reasons. First and foremost this is a result of the economic crisis, which hit most of its projects hard. In just one year – from the end of 2007 to the end of 2008 – the valuation of Equest’s portfolio fell from 400 million euro to 160 million euro. This, of course, includes deals done in 2008 as well.

The outbreak of the crisis coincided with the shareholder structure change and the arrival of the Omani fund. As a result of several deals, the new investors acquired the control stake in Equest and announced their strategy of focusing only on Equest’s larger projects.

This was followed by a change in the board of directors and the departure of Georgi Kroumov, one of Equest’s top executives and one of the key decision-makers at the fund. This change was followed by the new goals set for EIB: more efficient management of the key projects, cutting costs and selling small projects in order to cover debt.   

The bottom line is as follows – EIB has been around for five years, its investments peaking at the end of 2007. Up until then, the fund had invested close to 210 million euro and its portfolio was priced at close to 400 million euro (according to Equest itself), while its total debt at the end of 2008 came to 410 million euro.

Equest will be remembered as the most aggressive buyer who became the most active seller of its projects and assets. It will not take long for the investment giant that Equest once was to become just a regular company.    

*Spas Spassov contributed to this article

Kapital weekly, issue 48