Mo­ham­mad Za­hoor: How cor­rup­tion de­ters in­vestors

Edi­tor's Note: Mo­ham­mad Za­hoor owned the Kyiv Post from July 28, 2009, un­til March 21, 2018.

Kyiv Post - - Busi­ness - BY MARK RACHKEVYCH GHOUSE­MARK@GMAIL.COM

More than a decade ago, Mo­ham­mad Za­hoor was a met­als maker in roug­hand-tum­ble Donetsk, where first stud­ied met­al­lurgy as a stu­dent from Pak­istan, com­ing to Ukraine in 1974. He be­came $1 bil­lion richer in 2008 when he sold one of the most ef­fi­cient steel plants in the former Soviet Union in a per­fectly timed sale right be­fore the 2008 global fi­nan­cial cri­sis. Za­hoor kept his money cir­cu­lat­ing. Over the next 10 years, he built an in­vest­ment port­fo­lio in mar­kets and in­dus­tries where he had lit­tle to no ex­pe­ri­ence. They in­cluded com­mer­cial and res­i­den­tial real es­tate, plas­tics, me­dia, and film­mak­ing.

But many of those in­vest­ments were un­prof­itable and his net worth plunged.

To­day, the multi-mil­lion­aire Bri­tish cit­i­zen’s sole prof­itable as­set in the coun­try is a plas­tics man­u­fac­turer in Obukhiv, a city of 33,000 peo­ple lo­cated 40 kilo­me­ters south of Kyiv. It boasts more than 300 clients such as, Sam­sung Elec­tron­ics, Co­caCola Bev­er­ages, and SUN InBev, in ad­di­tion to mak­ing its own branded prod­ucts that are used for fur­ni­ture, gar­den­ing, house­hold goods, kitchen­ware and pack­ag­ing.

Al­ways dressed in sharp, taste­ful suits with hues that have com­po­nents of his fa­vorite color of pur­ple, Za­hoor, 63, has been strug­gling to res­ur­rect a land­mark ho­tel project that has al­ready cost him $90 mil­lion since 2009. Con­struc­tion idled in 2012; the build­ing has been empty since 1997.

His idea is to break into the hos­pi­tal­ity busi­ness and start a branded chain, he told the Kyiv Post in an in­ter­view in his Kyiv of­fice on Sept. 27.

Za­hoor wants to lift the “curse,” he said, at the czarist-era, ma­roon-col­ored Leipzig Ho­tel on the corner of Pror­izna and Volodyrm­ska streets — “the most beau­ti­ful build­ing in Kyiv” — near the Golden Gate.

He pur­chased the sto­ried ar­chi­tec­tural gem for $36 mil­lion in 2009 and won't give up on restor­ing the neo-Re­nais­sance style build­ing to its orig­i­nal splen­dor, dat­ing to 1902, when it was built.

“I’m in love with this build­ing,” the founder and chair­man of IS­TIL Group said. “We want to keep it and run it.”

Za­hoor said he needs $10 mil­lion in fi­nanc­ing and one more year to fin­ish ren­o­vat­ing five sto­ries in the proud build­ing that stands at 42.5 me­ters in height with 12,000 square me­ters of space.

His vi­sion is of a posh bou­tique ho­tel with dis­tinct fea­tures for guests who don't want to stay in cookie-cut­ter branded de­signs like Hil­ton.

“We have done all the au­dits of what needs to be done,” he said.

Cit­ing fig­ures pro­vided by lead­ing hos­pi­tal­ity mar­ket re­searcher STR, Za­hoor said, “this is the right time to start the ho­tel…even the most con­ser­va­tive num­bers show that we will pay back the money in six to seven years.”

In­deed, Kyiv is ex­pected to see a record of 2 mil­lion vis­i­tors in 2018, or 25 per­cent more than last year, ac­cord­ing to An­ton Tara­nenko, head of the city’s tourism and pro­mo­tion depart­ment.

In ho­tel oc­cu­pancy, higher-in­come guests, Za­hoor's tar­get, stayed in a record 47 per­cent of the seg­ment’s rooms dur­ing the peak months of May-Au­gust — nearly 2 per­cent­age points more over the same pe­riod last year, Chicago-based Jones Lang LaSalle, a ser­vice and in­vest­ment man­age­ment com­pany that spe­cial­izes in real es­tate, said in a news re­lease on Sept. 27.

'We're in a trap'

One big prob­lem for Za­hoor is how to end a 30-year con­tract with global gi­ant Mar­riott and get fi­nanc­ing, hope­fully from the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment with whom Za­hoor has a long work­ing re­la­tion­ship.

Oth­er­wise, “we have ev­ery­thing in place,” Za­hoor said. “We have a con­trac­tor, Ukrainian la­bor is cheaper, build­ing ma­te­ri­als are also not ex­pen­sive, we’ve lo­cated lo­cal man­u­fac­tur­ers…and the painters, the artists, there’s plenty of tal­ent here.”

The EBRD would not dis­cuss the project.

Za­hoor says he has a po­ten­tial op­er­a­tor based in Switzer­land lined up whom he wouldn’t name, but who may be ready to pro­vide fi­nanc­ing as well.

The doors to the Mar­riott-branded Re­nais­sance were sup­posed to open long ago, but con­struc­tion and fi­nanc­ing stopped sev­eral years ago be­cause the world­wide hos­pi­tal­ity chain in­formed him that his Turk­ish sub­con­trac­tor wasn’t com­pli­ant with qual­ity stan­dards.

That led to lit­i­ga­tion with the Turk­ish com­pany in nu­mer­ous ju­ris­dic­tions. With the EBRD hav­ing only lent about €4 mil­lion for the project, Za­hoor is still pay­ing off the out­stand­ing amount at a 10 per­cent yearly in­ter­est rate. Le­gal dis­putes with the sub­con­trac­tor have largely been re­solved.

Za­hoor said the Mar­riott deal is un­fair, pre­vent­ing him from mov­ing for­ward and get­ting fi­nanc­ing. "We are still ne­go­ti­at­ing with Mar­riott be­cause we have a one-sided con­tract in which they have the right to ter­mi­nate the con­tract. We don’t have the right,” Za­hoor said.

Mar­riott did not re­spond re­quests for com­ment.

But Za­hoor ad­mit­ted that he is to blame for en­ter­ing into such a bad agree­ment. “It was my mis­take. I per­son­ally didn’t look into that. Our peo­ple…you know, for the Ukrainian peo­ple, Mar­riott for them is like God. So they went all in,” he added.

Za­hoor wouldn’t dis­close much of the terms of the 30-year deal and how much it would cost to walk away from it. He did say that about $100,000 would be owed for due dili­gence, ho­tel man­age­ment soft­ware, and other ex­penses.

Re­cently, he ap­proached Mar­riott to again and asked whether it is will­ing to in­vest in the ho­tel’s com­ple­tion.

“They said no,” Za­hoor said. “They said, ‘we can ter­mi­nate the con­tract with the con­di­tion that when­ever you find the fund­ing you will re­in­state it.’ So how can you ter­mi­nate the con­tract…they’re not bring­ing skin into the game and not let­ting us find an in­vestor who will come, and the op­er­a­tor…why would they come and bring money for Mar­riott?” He con­tin­ued: “We’re in a trap.” Con­tracts with global ho­tel chains are usu­ally iron­clad and are cus­tom­ar­ily one-sided. Chains usu­ally pro­vide de­vel­op­ment ser­vices for fur­ni­ture, fix­tures, and equip­ment. Next comes a fran­chise agree­ment to use an op­er­a­tor’s reser­va­tion sys­tem and logo.

A Re­nais­sance sign still hangs atop the un­com­pleted ho­tel. A sep­a­rate con­tract usu­ally in­volves mar­ket­ing and sales on a daily ba­sis. An­other op­er­a­tor would avoid do­ing busi­ness with Za­hoor be­cause of his en­tan­gle­ments.

Za­hoor said that the United King­dom is the ju­ris­dic­tion for any le­gal dis­putes and said he is will­ing to go to court to in­val­i­date the agree­ment if “Mar­riott doesn’t want to am­i­ca­bly.”

Still, the con­tract may in­clude “liq­ui­dated dam­ages” that takes into ac­count how much Mar­riott could make over 30 years, which is about 12–15 per­cent of to­tal rev­enues, eas­ily mil­lions of or tens of mil­lions of dol­lars.

Leipzig’s sto­ried his­tory

The site of the failed Mar­riott ho­tel has seen trou­ble from its in­cep­tion, ac­cord­ing to a Nov. 7, 2013 Kyiv Post ar­ti­cle that was par­tially based on in­ter­views with Kyiv his­to­ri­ans.

Its first builder, hunt­ing weapons trader Py­tor Grig­orovich-Barsky, ran out of money at the turn of the 20th cen­tury. One of his cred­i­tors then bought the build­ing at an auc­tion and com­pleted it.

Nu­mer­ous stat­ues and stucco or­na­ments adorned its façade upon com­ple­tion. “His­to­ri­ans note it also has some el­e­ments of baroque while its ex­pan­sive win­dows are con­sid­ered to be done in the mod­ern style,” the Kyiv Post wrote.

It housed the Mark­iza pas­try shop on the first floor in the czarist era, which was men­tioned in Mikhail Bul­gakov’s novel “The White Guard.” The Palermo Ho­tel also op­er­ated there un­der Alexan­der Sirotkin.

Dur­ing the Soviet era, the con­fec­tionary was con­verted to the Chaika (seag­ull) restau­rant be­fore turn­ing into the two-story “Leipzig restau­rant that served Ger­man cui­sine with which so many older Kyiv res­i­dents as­so­ciate the build­ing,” the Kyiv Post re­ported. The re­main­ing space was con­verted to cramped “com­mu­nal” apart­ments to ad­here to the Com­mu­nist ide­ol­ogy of the time.

In the mid-1980s, the build­ing re­ceived land­mark sta­tus.

“The build­ing would have cost around half as less if it wasn’t for this sta­tus,” Za­hoor noted.

Its re­main­ing res­i­dents were evicted af­ter a fire erupted in 1997, af­ter which Lviv-born mil­lion­aire Ge­nadiy Gen­shaft leased the build­ing from the Kyiv City Coun­cil. Own­er­ship then trans­ferred to Con­tin­uum Group that was con­trolled by part­ners Stepan Ivakhiv and Ihor Yere­meev be­fore they sold it to Za­hoor in 2009.

“I al­ways loved that build­ing and al­ways felt bad about it stand­ing still with no progress what­so­ever,” Za­hoor said in Novem­ber 2013.

Core as­sets re­main

Za­hoor lost valu­able as­sets in the Don­bas to Rus­sia's war, which has put the Krem­lin in con­trol of parts of Donetsk and Luhansk oblasts since April 2014. He lost a Donetsk ho­tel and a highly prof­itable, state-of-theart coal en­rich­ment plant in Luhansk Oblast.

Dur­ing this pe­riod, Za­hoor also sold a tele­vi­sion pro­duc­tion stu­dio to bil­lion­aire oli­garch Ihor Kolo­moisky and a pre-pay tele­vi­sion ser­vice to the na­tion’s rich­est bil­lion­aire Ri­nat Akhme­tov. On March 21, 2018, Za­hoor sold Ukraine’s old­est and largest English-lan­guage news­pa­per, the Kyiv Post, for more than $3.5 mil­lion to Odesa busi­ness­man Ad­nan Ki­van, a na­tive of Syria. (Nei­ther will dis­close the ac­tual sales price.)

Like the Leipzig struc­ture, Za­hoor has a soft heart for the Kyiv Post.

“In Ukraine, you al­ways have fun,” he said. “The first fun was buy­ing the Kyiv Post. The other one was sell­ing it." He wanted it to be taken care of prop­erly and thinks the news­pa­per is in good hands with Ki­van. "It’s like

rais­ing your child. You can­not just give it to some drug dealer.”

Za­hoor, who sub­si­dized the news­pa­per dur­ing his en­tire nine years, con­tin­ues to sup­port by fi­nanc­ing a yearly $18,000 fel­low­ship for univer­sity grad­u­ates to work there while they re­ceive on-the-job train­ing, coach­ing and men­tor­ship.

He re­tains own­er­ship also of the Rialto Busi­ness Cen­ter in an in­dus­trial area in the Podil neigh­bor­hood.

As of Oct. 1, he closed down the 500-seat Kinopanoroma the­ater, built in 1958, the city’s fa­vorite des­ti­na­tion for art­house films. He wants to de­mol­ish it and build a three-star ho­tel, yet house a smaller screen­ing room “out of re­spect to the his­tory.”

It will also have room for con­fer­ences and will keep its Panorama name.

Fight­ing raider at­tacks

Za­hoor is no stranger to at­tempts at steal­ing his as­sets, known as “raider” at­tacks.

In the Don­bas he had to with­stand pres­sure and sell a steel plant and then en­dured po­lit­i­cal pres­sure af­ter Pres­i­dent Leonid Kuchma was elected in 1994 be­cause he made a tele­vi­sion ap­pear­ance as a for­eign in­vestor on be­half of in­cum­bent Pres­i­dent Leonid Kravchuk, who was seek­ing re-elec­tion.

As the pub­lisher of the Kyiv Post dur­ing ex-Pres­i­dent Vik­tor Yanukovych’s cor­rupt and au­thor­i­tar­ian rule, ended by the EuroMaidan Rev­o­lu­tion on Feb. 22, 2014, he was told to kill a story on the agri­cul­tural min­is­ter's al­leged in­volve­ment in cor­rupt schemes to con­trol grain ex­ports. Kyiv Post chief editor Brian Bonner pub­lished the story and Za­hoor promptly fired him, trig­ger­ing a five-day la­bor strike re­solved af­ter both sides came to an agree­ment that al­lowed Bonner's re­in­state­ment.

Za­hoor also re­fused of­fers to sell the news­pa­per to such oli­garchs as Dmytro Fir­tash, who un­suc­cess­fully sued the Kyiv Post for li­bel and lost the case in 2011, and Yanukovych’s al­leged money front­man Ser­hiy Kurchenko. Both are now abroad in ex­ile, Fir­tash fight­ing U.S. cor­rup­tion charges that he de­nies. Still, il­le­gal takeovers took place. Za­hoor says the De­fense Min­istry since 2009 has tried to seize prop­erty and land from Za­hoor on 24 Si­chovykh Strilt­siv (for­merly Artema Street). He won the ini­tial court bat­tles re­gard­ing the res­i­den­tial prop­er­ties he bought there. But af­ter he com­pleted a trans­ac­tion to buy the land for $3 mil­lion from the Kyiv City Coun­cil in Fe­bru­ary 2011, the De­fense Min­istry again ini­ti­ated lit­i­ga­tion, Za­hoor said.

Once the fi­nal pay­ment was made in May 2017, the land sale was chal­lenged. An ap­pel­late eco­nomic court case is sched­uled to hear the case on Oct. 22.

As a for­eign in­vestor, Za­hoor in March ap­proached Daniel Bi­lak, the head of the state-run Ukraini­anIn­vest pro­mo­tion of­fice and who is the chief in­vest­ment ad­viser to the prime min­is­ter.

Bi­lak, reached in London where he is pre­par­ing for Ukrainian Week events there, said "it would be in­ap­pro­pri­ate at this time to in­ter­fere or in­flu­ence on­go­ing ju­di­cial pro­ceed­ings.”

Af­ter get­ting the com­plaint, he re­ferred Za­hoor to cur­rent act­ing Fi­nance Min­is­ter Ok­sana Markarova. At the time, she was first deputy fi­nance min­is­ter and gov­ern­ment in­vest­ment com­mis­sioner. “We were told that Ok­sana also has good re­la­tions with the Min­istry of De­fense and has been in­stru­men­tal in re­solv­ing a num­ber of is­sues in­volv­ing the min­istry,” Za­hoor said.

Af­ter their March 22 meet­ing, she stopped re­spond­ing to com­mu­ni­ca­tion from Za­hoor.

"While I un­der­stand the dif­fi­cul­ties some in­vestors face in Ukraine and do ev­ery­thing I can to help out, when it comes to court dis­putes in no way did I sug­gest in­flu­enc­ing an on­go­ing court case, as this would be not only in­ap­pro­pri­ate but also il­le­gal," Markarova told the Kyiv Post. "I be­lieve that no amount of in­vest­ment, no mat­ter how sig­nif­i­cant, gives any­one the right to cir­cum­vent the due process by ap­peal­ing to high-rank­ing gov­ern­ment of­fi­cials or drop­ping their names in their pub­lic com­mu­ni­ca­tion."

Za­hoor said the il­le­gal land grab is con­tin­u­ing.

"I’m go­ing to write a blog about it and send it to the news­pa­pers, the diplo­matic com­mu­nity — I mean, with all of Ukraine’s road­shows… the up­com­ing Ukrainian Week in London on Oct. 8–14 — they’re not tak­ing care of the in­vestors who’ve in­vested over $400 mil­lion in their econ­omy.”

He has some ad­vice, how­ever, for the man who bought the Kyiv Post from him.

"Since we've sold the news­pa­per, and this is a mes­sage to Ad­nan Ki­van: He should keep the news­pa­per close to his chest be­cause we've faced raider prob­lems."

YUNA ex­pan­sion

Za­hoor is ex­pand­ing the YUNA music awards — his pet project — to in­clude four more tech­ni­cal prizes this year. His wife, Ka­maliya, is the ac­tress and pop singer who has made charts across Europe. The Hil­ton ho­tel, easy walk­ing dis­tance from his IS­TIL Group of­fice on Shevchenko Boule­vard, is a spon­sor and 1+1 chan­nel is a me­dia part­ner.

More time with kids

He spends more time with his 5-yearold twin daugh­ters than he did with his now-adult daugh­ter and son from a pre­vi­ous mar­riage.

“I missed their up­bring­ing from work­ing a lot. Now I don’t want to miss this one. This is God’s blessing in this age. I want to spend so much more time,” Za­hoor said, even at­tend­ing par­ent-teacher meet­ings in school.

He spends about 40 per­cent of his time in Kyiv — “be­cause this is my nest and my daugh­ters live here” — and the rest of time ei­ther in London, his na­tive Pak­istan, where he runs a gov­ern­ment re­la­tions con­sul­tancy firm that ser­vices for­eign com­pa­nies, or in Dubai, where he runs a ce­ment fac­tory.

Mo­ham­mad Za­hoor, chair­man of the IS­TIL Group, speaks with the Kyiv Post on Sept. 27 in his head­quar­ters on 33 Taras Shevchenko Boule­vard near Vic­tory Square. Za­hoor, who sold the Kyiv Post in March af­ter nearly nine years of own­er­ship, says Ukraine's cor­rup­tion is flour­ish­ing, dis­cour­ag­ing in­vest­ment. (Kostyan­tyn Ch­er­nickin)

Peo­ple pass by the Re­nais­sance ho­tel on Sept. 30 near Zoloti Vorota in Kyiv. Mo­ham­mad Za­hoor, the former Kyiv Post pub­lisher, has spent $90 mil­lion to buy and ren­o­vate the build­ing, only to face prob­lems that leave the project un­fin­ished and the build­ing empty. For ex­am­ple, the Se­cu­rity Ser­vice of Ukraine has asked pros­e­cu­tors to in­ves­ti­gate whether has im­prop­erly al­tered the his­tor­i­cal fa­cade. (Kostyan­tyn Ch­er­nichkin)

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