Controversial Czech tycoon sells miners' flats to Round Hill Capital

By bne IntelliNews August 6, 2015

bne IntelliNews -


Controversial Czech tycoon Zdenek Bakala has agreed to sell the country's largest private landlord to international real estate investors Round Hill Capital, reopening the debate over the privatisation of the Czech black coal industry.

Under the deal, the value of which was not disclosed, Round Hill's Fondy Bydleni 1 will buy 100% of RPG Byty, which owns 43,000 flats or 2.6mn square metres of property provided for North Moravian miners working at the OKD coal mines. Fondy Bydleni 1 Services will also acquire full control of facilities management company RPG Sluzby. The deal is subject to regulatory approvals, which despite the controversy surrounding the future of the apartments, both sides are confident will be forthcoming.

"A corporate transaction of this size is subject to an antimonopoly approval in the Czech Republic. As Round Hill does not own any properties in the Czech Republic, we do not expect any issues with the approval, which should normally take around 4-6 weeks despite the media noise about one of the current owners," a representative of RPG Byty said.

RPG Byty's current owner Domus is partly owned by Bakala, who acquired the housing from the state in 2004, along with the state's remaining minority stake in OKD. The mining company is now held by struggling New World Resources (NWR), in which Bakala is also a major shareholder.

The sale of the state's stake by then finance minister (now Prime Minister) Bohuslav Sobotka has since become very controversial amid allegations, which the premier denies, that the deal was underpriced and corrupt.

Bakala, who dropped out of Forbesbillionaire list for 2015, is these days one of the most unpopular figures in the Czech Republic. He is criticised for extracting some €2bn in dividends from the coal miner during the boom years and then threatening cutbacks when coal prices fell. A plan to shutter the Paskov mine was averted following lengthy negotiations with the government over state support last year.

RPG Byty, meanwhile, hit the headlines in 2009 when it was claimed that Bakala had reneged on commitments under the privatisation agreement to offer to sell flats to existing tenants at below-market prices.  That provoked a long fight with the government that reached all the way to the Constitutional Court. President Milos Zeman even tried in 2013 to resolve the issue by pulling RPG Byty into the deal on Paskov. 

As NWR went through a painful capital restructuring last year, Dutch-based Domus was forced to scrap a plan for an IPO of RPG Byty in May. The company blamed "market conditions", and claimed it would continue to "explore strategic options".

Speculation that RPG Byty – which in contrast to OKD is performing well, having earned net profit of over CZK450mn in 2014 – would be hived off has persisted since. The financier retains another large chunk of property in the same region of North Moravia. Through a company named Asental, he hopes to create an industrial zone on land holdings in the area.

Unwelcome spotlight

The sale of RPG Byty puts Bakala's purchase of the coal miner, and his actions since, back under the spotlight. The president of the tenants association for the former miners' flats, Roman Machacek, told E15 the deal is, "another step towards completion of the fraudulent privatisation of the OKD".

A spokesman for the Czech magnate shrugged off any accusations, insisting tenants will benefit from the new owner's specialised real estate operations. "From the perspective of Zdenek Bakala, it is another step in implementing the earlier decision of a friendly breakup with former associates," he said, referring to Bakala and his partners' decision to split assets and put the remaining joint-owned assets into CERCL Holdings, which as well as RPG Byty also includes a 50.5% interest in the mining holding company NWR and a 23.9% interest in Ukrainian iron ore miner Ferrexpo. One of these partners is Peter Kadas, co-founder of Moscow investment bank Renaissance Capital, who had reportedly resisted any cut-price sale of the flats to the miners.

For Round Hill, it is trying to look beyond the immediate controversy and focus on the future of what marks its entry into the Czech residential property market. The London-based company has a portfolio of property – much of it student accommodation – in the Netherlands, Germany and the UK.

A spokesperson told bne Intellinews that, "We don't intend to look to the past, especially as we were not involved with RPG Byty prior to this acquisition. Our focus is the future."

"We look forward to working together with the RPG Byty and RPG Sluzby management teams to continue to manage the companies in a responsible fashion and to ensure that tenants benefit from our focus on long term ownership and our professional residential property management approach," said Michael Bickford, founder and CEO of Round Hill Capital.

Pavel Klimes, co-CEO responsible for operations of RPG Byty, noted that over the last 10 years "the portfolio of RPG Byty has been substantially refurbished", referring to the €400mn of 6 ¾% notes due 2020 that was issued to pay for improvements to the housing stock.

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