As the Czech proverb goes, “in every rumor there’s an element of truth.” For weeks now there has been speculation that the insolvency administration and subsequent decision to liquidate the property developer ECM Real Estate Investments has been directed by Czech billionaire Petr Kellner’s PPF Group. The latest developments suggest that this is indeed the case, or could it be just a combination of coincidences?
Here’s a very brief summary of the main developments to date in the ECM case:
- On July 20, a majority of ECM’s creditors voted to liquidate the company
- The commission of creditors convened on July 22 and were introduced to the external advisor of the insolvency administrator
- On August 5, a group of creditors who hold ECM eurobonds appealed against the decision to declare the company bankrupt and sell off its assets, but their appeal was rejected by the insolvency administrator. These creditors have appealed against the decision
- At the first meeting of the commission of creditors on July 22, the insolvency administrator, Ivo Hala, introduced his team of expert advisors from PricewaterhouseCoopers (PWC) and Rea International. The experts’ role should be decisive in converting ECM’s assets into cash
The representatives of Rea International are not newcomers to the ECM case. At the first meeting of the provisional creditors’ commission that took place on July 1, Rea International was selected as the expert advisor to the commission. The members of the provisional commission then were Astin Capital, Česká spořitelna, Glancus Investments – a PPF Group company, and Volksbank.
The choice of Rea International had a certain logic: One of the company’s founders, Lubor Stehlík, served as the Czech trade attaché to Beijing for several years and thus has practical experience of the business environment in China. One of his achievements in China was to assist PPF strike a deal with Changhong Electric. The provisional creditors’ commission required a consultant to decide on the sale of the ECMall in Beijing. ECM’s mall has not yet been sold; nevertheless, Stehlík’s experience in China was certainly a valid argument for selecting Rea International.
Rea proved worthy
After ECM was declared bankrupt, the scope of Rea International’s mandate was increased considerably; the company now advises It’s obvious who recommended Rea: Stehlík cooperated with PPF in China, and until 2005 he worked in the Czech embassy in Beijing. the insolvency administrator. At a meeting of the creditors’ commission on July 27, administrator Hala stated the following: “PWC should rather assist with operational matters, and consider entrusting assistance with sales [of ECM assets] to Rea.”
The head of Rea International in turn assured the creditors that his company has “a strong team with rich experience” and was ready to provide advice to the extent required including on ECM’s large foreign projects.
Rea International was entrusted with the task of drawing up a timetable and priorities for the sale of ECM assets, searching for opportunities to cash in ECM projects, negotiations with potential buyers and proposing the method and organization of sales. Administrator Hala declared that hitherto in the administration proceedings Rea International had proved effective and “until the moment a plan for the sale of assets is completed, no other advisors will be approached,” Hala is stated as saying in the official minutes of the meeting.
“The company received a mandate as the only advisor to the provisional creditors’ commission on the basis of recommendations by several of its members. Consequently, after issuing a tender and by the decision of the creditors’ commission, [the company] transferred directly to the team of advisors to the insolvency administrator,” Lubor Stehlík said explaining how the firm he co-founded and represents obtained its mandate.
Beijing connections
It’s obvious who recommended Rea International. As already mentioned, Stehlík cooperated with PPF in China and until 2005 he worked in the Czech embassy in Beijing. That same year Jan Blaško was appointed to head PPF’s representation in China. Now Blaško is the official representative of PPF’s Glancus Investments, which is involved in the ECM administration proceedings as a creditor. Visitors to Rea International’s website can easily deduct that the company was inspired by PPF Group in the creation of its logo, including similar if not the same tones as PPF’s blue and gray.
The co-owner of Rea, Štěpán Hampl, worked for a number of years in high managerial positions in Česká spořitelna, and then became the business director of the real estate developer Finep. When ECM went into administration, Česká spořitelna initially supported the proposal for ECM to be allowed to attempt reorganization. Later, however, the bank reneged and like PPF’s Glancus voted to declare the firm bankrupt and sell off its assets.
ECM grew to become one of the largest Czech development firms. In addition to its best-known project in the Czech Republic, the CITY Pankrác multipurpose project in Prague 4, the company has assets in China, Russia and Poland. According to the insolvency administrator’s report dated July 18, at the end of May ECM’s assets were worth over Kč 3.3 billion.
It won’t be a straight forward task to sell off ECM’s assets due to their size and diversity — the assets include half-built projects, completed properties, and also plots of lands for projects in the planning stages. They comprise office buildings, residential projects and shopping centers in many locations with very different real estate market conditions.
“Individual members of the team have experience with similar portfolios. As regards the extent of the commission concerning the expected cash generation for the creditors, Rea has references from similar projects,” Lubor Stehlík told Czech Position, adding that Rea has allocated five experts to the ECM case who have the administrative help and assistance of ECM employees.
Mostly links to Chinese business
According to the company register, Stehlík and Hampl have directed their own company since 2009, the website of which states the firm has three divisions: consultation, export and development. Most of the company’s activities are connected in some way or another with the Chinese market. The real estate projects in which Rea International’s owners played a role in the past that are cited on the site include the residential complex Central Park Praha, and clients from the sector named include Union Partners, Staopra, BoTe and Akro.
Stehlík says that the timetable and the proposal of how to dispose of ECM’s assets will be ready after analysis of individual projects and approval by ECM’s creditors. “The forecast time required to perform the mentioned tasks is a matter of weeks,” Stehlík says.
Nevertheless, the appeal by the ECM creditors with Eurobonds against the decision to liquidate the company could delay or even halt the sale of assets. The High Court has two months as of receiving the list of ECM assets within which to deliver a decision.
