Nai Pickard

Akhmetov may get control of central department store

Ukraine’s richest man Rinat Akhmetov is poised to snap up Kyiv’s aging Soviet Central Department Store and develop it into the capital’s equivalent of London’s luxury retail store Harrods.

Steel baron and pro-presidential lawmaker Akhmetov recently purchased 23 percent stake in the building, located on Kyiv’s main street and known by its Russian acronym TSUM. Sources said Akhmetov is set to buy a controlling stake.

The imposing brown-stone store, constructed and opened in the 1930s, has remained largely loyal to its Soviet roots over the last two decades as other new shopping venues have shot up alongside it. The clothing and household goods on offer are mostly Ukrainian-made, and the store’s interior and customer service retains a Soviet feel.

But that could all change if the store falls under the control of Akhmetov, who has a number of luxury real estate projects in Kyiv and his home town of Donetsk.
At the end of September, a subsidiary of Akhmetov’s System Capital Management (SCM) holding company bought a 23 percent stake in TSUM for an undisclosed amount from businessman Valery Mazur, a former deputy minister for industrial policy.

Now, negotiations to cede Akhmetov a controlling stake in the building are in their final stages, Anton Gliwinskiy, head of corporate communications at Akhmetov’s real estate holding ESTA, told the Kyiv Post.

However, a final decision on the exact format of the new TSUM has yet to be taken, Gliwinskiy added.

In the meantime, the other 77 percent of TSUM is still owned by Mazur, and SCM is not telling how much they plan to pay. Mazur could not be reached for comment.

British real estate entrepreneur Terry Pickard, of NAI Pickard, valued the TSUM building at around $300 million. It would take another $50 million to refurbish it into a first-class department store, Pickard added.

Pickard said the idea of developing TSUM along the business model of Harrods would make good business sense.

“If you put an upscale supermarket in the basement and attracted top brands to the other floors, it would be a magnet,” he said.

With a metropolitan population of five million people and plenty of disposable income, Kyiv could more than provide the demand for such a project, according to Pickard.

If successfully managed, a refurbished TSUM would draw labels away from the fledgling Kyiv chic zones of Passazh, Arena and Mandarin Plaza.

Mandarin Plaza, for example, has been less successful than expected due to its vertical spacing set-up, Pickard said.

But the owners of upper-class Kyiv shopping outlets may not be ready to hand over their customers so easily.

In July, Ukrainian media reported that a company allegedly controlled by Mandarin Plaza’s Vagif Aliev won a state auction to buy 39 percent of Open Joint Stock Company TSUM for around $11 million.

SCM insiders said this company has nothing to do with the TSUM building being sold to them by Mazur, but the privatization deal could nevertheless serve as a pretext to future court battles.

SCM, through its real estate arm ESTA Holding, also has two other real estate projects under development in the Ukrainian capital.

If the deal is completed, it will be the latest addition to a luxury property portfolio that already includes a first-class football stadium and top-end hotel in Donetsk, as well as prime Kyiv real estate such as the Opera Hotel and the Leonardo Business Center, which he co-owns with fellow oligarch Leonid Yurushev.

ESTA Holding recently announced that it planned to invest over the next two years more than $250 million in real estate – building and acquisition. It wants the assets it invests in to be worth over $1 billion by 2015, according to a company press release.