The Chinese are not allowed to buy the hotel "Beijing"

The Chinese authorities did not give permission to buy a hotel owned by Gals-Development.
The Chinese state-owned company Sichuan Railway Investment Group (SRIG) may refuse to buy the Beijing Hotel, two people close to different sides of the negotiations told Vedomosti. According to them, this deal did not receive the approval of the Chinese authorities. The reason for this decision is not known to them.

There are chances that the deal will finally take place, SRIG is actively negotiating with Chinese authorities engaged in foreign investment in China, but for now its closure is postponed indefinitely, say the Vedomosti interviewees.

The representative of Gals-Development (owns Peking) declined to comment. Vedomosti’s requests to the Chinese Ministry of Commerce, the office of the economic and trade adviser to the Chinese Embassy in Russia, and the Moscow office of SRIG remained unanswered.

The Beijing Hotel and Office Complex (25,800 sq. M.) Was built in 1958 as a symbol of friendship between the USSR and China. In 2006, the Moscow government transferred the hotel to the Intourist company owned by AFK Sistema and in return received a large stake in the latter. In 2011, Sistema-Hals (now Gals-Development) bought the hotel from Intourist, which by then had passed for debts from Sistema to VTB Group. The developer planned to rebuild it into a 5-star hotel, and even signed an agreement to manage it with the luxury operator Fairmont Hotels and Resorts.

But the deal fell apart due to the postponement of the reconstruction of the hotel, people close to the companies told earlier. And last year, Chinese companies became interested in Beijing. At that time, Reuters reported that China Chengtong (which manages assets of approximately $ 15 billion) is negotiating the purchase of the hotel. However, in January of this year, the agreement to acquire the hotel was signed by SRIG.

This state-owned company specializes mainly in the construction and management of railways and highways. However, outside of China, the SRIG business is more diverse - it is mining in Australia and African countries, and in Russia - agriculture (it owns the Agro-Industrial Trading Company in Chuvashia). Her website says that by 2020 the value of assets under its management will exceed 400 billion yuan (about $ 60 billion).

Chinese companies are investing in Russian real estate, are interested in it, but even private firms in China are obliged to coordinate foreign investments with the state, says Key Capital CEO Sergey Kamliuk. And this, according to him, can take quite a long time - for example, the purchase of the business center "Vozdvizhenka Center" (formerly Voentorg) of the Chinese Fosun International took about two years. The purchase of “Beijing” may not take place due to “bureaucratic procedures in China”, Svetlana Kara, managing partner of Capital Global Partners, agrees. All foreign transactions are checked for currency and economic risks, and this procedure is not fast, especially for state-owned companies, she says. In addition, in recent years, China’s policy regarding investment in commercial real estate has changed significantly, says Smushnova, head of the hotel business and tourism department at Cushman & Wakefield: such investments, especially for state-owned companies, have been greatly reduced.

The parties also could not agree on a price, the consultant, who knows about it from one of the negotiators, said. According to him, Gals-Development wanted to help out 5–6 billion rubles for Beijing. Today this hotel is hardly worth more than $ 35–40 million (2.3–2.6 billion rubles), according to Stanislav Ivashkevich, owner of the management company Ivashkevich Hospitality.