Who will bid for Ocean Plaza?

Ukraine’s government on 9 June decided to transfer to the state property fund its share in the Ocean Plaza shopping mall, which is 66.65 percent.

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Ocean Plaza was built in 2012 by Ihor Nikonov's KAN Development and Andrii Ivanov and Vasyl Khmelnytskyi's Ukrainian Development Partners (UDP).

Later, TPS Nedvizhimost [Real Estate], a Russian company co-founded by Mr Putin’s close friend Arkady Rotenberg, expressed a desire to buy the shopping centre’s major share. This largest share was indeed bought from Mr Nikonov's KAN Development.

According to openly available information at the time, the deal was worth more than USD 280 million. The Russians bought the very first line of Ocean Plaza, which was put into operation. The rest of the shares remained with Ivanov and Khmelnytskyi’s UDP company.

The first issues with Ocean Plaza’s management arose in 2014, after the Russian annexation of Crimea and the war in Donbas.

Initially, Mr Rotenberg withdrew from TPS Nedvizhimost’s shareholders, most likely because the European Union and the United States slapped sanctions on him. But later, his daughter, Lilia Rotengberg, became a shareholder.

In 2018, the Russians decided to try to sell the facility. The first bidder to buy Ocean Plaza was Tomas Fiala’s Dragon Capital investment company.

A year later, businessman Vagif Aliyev was rumoured to become the owner of the mall. It was not a coincidence since Mr Aliyev was building another shopping centre, Ocean Mall, right next to Ocean Plaza. If the two shopping centres had been merged, it would have created one large complex of 400,000 square metres.

The deal fell through, however: while the Russians wanted USD 250 million for the mall, Mr Aliyev offered only USD 150 million.

And then Ocean Plaza was engulfed in maintenance problems.

In early 2016, the first major pipe burst near the mall, which did not affect the building. The second time the pipe burst in January 2020, almost the entire building was flooded, and the mall was closed for several months.

Officials from the Kyiv city state administration said there was "damage to a 1000 mm diameter heating main, this pipeline was built in 1987, it has already reached the end of its standard service life, and that is why such damage occurred."

In May 2021, the pipe burst near Ocean Plaza – again.

After Russia launched a full-scale invasion of Ukraine, the mall shut down, with immediate talk of confiscating its Russian share and transferring it to the state property fund. The building itself was under arrest for some time.

Now, the Ukrainian government owns a 66.65-percent stake, giving it managerial rights. The state property fund plans to sell it. The fund’s advisor, Oleksandr Nosachenko, says the auction may take place in the third or fourth quarter of 2023, when the property is brought to a proper privatisation condition.

The state property fund estimates the market value of Ocean Plaza at USD 150 million; Forbes Ukraine, a business magazine, puts it a bit higher, at USD 180 million. The entrance fee to the auction, i.e. the starting price, will be USD 100 million.

Theoretically, the Russians’ share in the mall could be claimed by those investors who were involved in the construction phase – including Vasyl Khmelnytskyi, Andrii Ivanov, and Vagif Aliyev.

Mr Khmelnytsky told LIGA.net he did not plan to participate in the privatisation auction, no matter what the starting price was.

"I was interested in investing in Ocean Plaza 15 years ago, as it was a unique innovative shopping mall for Ukraine and a profitable business," his representative said.

Earlier, Mr Khmelnytskyi exited the joint construction business with Mr Ivanov, selling him his stake in UDP.

However, Mr Ivanov, whose UDP now owns the rest of Ocean Plaza’s shares, refuses to participate in the privatisation auction as well.

"Investing in such facilities during the war is inappropriate – there is a hypothetical risk of shelling. In addition, the assessment of the value of the asset given by state property fund advisers is too high given all the risks involved," his office said in a statement to LIGA.net.

Indeed, the upcoming sale of the mall has problems, including a faulty heating main, former Russian ownership, and the risk of damage due to Russian missile attacks.

But despite this – and the relatively high starting price – some businesses may be willing to participate in the auction.

By the way, back in 2019, Vagif Aliyev wanted to buy Ocean Plaza but was not satisfied with the price. Now, the price may be acceptable to him – and so he will own a single complex of two shopping malls with a size of 400,000 square metres.