How Gulliver overcomes financial storms: the history of the loan and the current challenges of its owners

The Gulliver multifunctional complex is one of the most popular shopping and entertainment centers in Kyiv and one of the highest business centers in the capital. However, like many other large projects, it has faced financial challenges, one of which was a foreign currency loan that was raised to finance its construction and development. Converting this loan into hryvnia could be an important step to repay the debt to state-owned banks more quickly. However, this plan requires permission from the National Bank of Ukraine, UNN reports.

How it all began

The idea of creating Gulliver originated in the early 2000s. The project envisaged the construction of a public, residential, retail and office complex with a parking lot.

To implement the project in 2003-2006, the beneficiaries attracted significant loans. The main lenders were Ukrainian banks, but the loan was issued almost entirely in foreign currency. This became a key problem with this loan later on.

It's worth noting that in the noughties, such loans were taken out by everyone - both companies and individuals. Currency stability, as it was believed at the time, would last for a long time, and real estate would constantly grow in value.

However, the crises of 2008 and 2014 dealt an irreparable blow to businesses that had been lending in foreign currency. In addition to a significant increase in mandatory payments in terms of hryvnia, demand fell as people became poorer.

We'll come back to the crises later, but first we need to explain when Ukrainian businessman Viktor Polishchuk became the owner of Gulliver.

Even at the stage of building the floors, Polishchuk invested in several floors to house his companies' offices in the future.

Later, in 2012, the businessman became the main beneficiary of the project. At that time, the complex was partially built and required significant investments to complete construction and put it into operation.

However, in addition to the investment to complete the construction, the new owner had to undertake to repay a substantial foreign currency loan taken out by the previous beneficiaries. At that time, the loan amounted to about $300 million for the construction of the complex.

After making all the financial calculations, assessing the condition of the building and the project's development prospects, Victor Polishchuk agreed to buy the building together with the loan. The businessman invested in the completion of the construction and further development of the complex, for which the project received another $100 million loan from banks to launch the complex.

The opening of Gulliver and the first crisis

The official opening of Gulliver shopping center took place in 2013. The shopping and entertainment center has become one of the largest in Kyiv, offering a wide range of shops, restaurants, entertainment venues and office space.

After the opening of the shopping center, the project began to generate stable income from the lease of retail space, which allowed it to gradually repay its loan obligations to banks.

However, during the economic crisis that hit Ukraine after 2014, many companies faced financial difficulties. The owners of Gulliver BFC also felt the impact of economic changes, which made it difficult to repay their loans on time.

Due to the devaluation of the hryvnia after the 2014 crisis, the loan debt doubled as the hryvnia exchange rate changed from 7.99 to 15.76 per dollar.

The decline in revenues was exacerbated during the pandemic, as stores and offices were operating in a limited mode at the time.

In response to the financial difficulties, negotiations with the lending banks were ongoing and in 2020 the loan was restructured in accordance with the "Law on Financial Restructuring". (On 19 July 2016 , the Law of Ukraine No. 1414-VIII "On Financial Restructuring" dated 14 June 2016 (the "Law on Financial Restructuring") was officially published.

It is worth noting that this law was drafted at the initiative of the IMF, with the participation of representatives of the EBRD and the World Bank, and was based on the best international practices. This law provides for special safeguards to ensure that the entire process is free of abuse. One of them is the involvement of third-party independent experts, so in this case, world-renowned companies were involved - ROTHSCHILD, DELOITTE, ERNST&YOUNG, KPMG, GRANT THORNTON and CUSHMAN&WAKEFIELD.

The experts proposed more than 10 restructuring options and, in accordance with the law, chose the one that would maximize the economic benefits for the involved creditor banks.

Also, during the restructuring, only a part of the loan was converted into hryvnia, while most of the debt is still denominated in foreign currency.

Thanks to the debt restructuring and the resumption of economic activity, Gulliver Construction Company managed to stabilize the project's financial position.

The beginning of a full-scale war and the second crisis

The owners of the complex complied with the restructuring terms until the outbreak of the full-scale war, in February 2022.

At that time, almost all Ukrainian banks provided their clients with loan repayment holidays, and then there was a gradual process of resuming payments on account of loan servicing. The fact that Gulliver is located in the city center did not save it from a drop in revenue at the beginning of the large-scale invasion.

Revenues dropped 22 times compared to 2021, the office part was empty, and the retail part was occupied by a grocery supermarket and a pharmacy. At the same time, the facility had to be maintained, meaning that expenses in the first months of the great war exceeded revenues.

Along with the gradual resumption of business activity, Gulliver's owners returned to debt service in 2023 as part of the restructuring agreement. Subject to stability, the borrower will be able to fully resume loan servicing from the beginning of 2025. It is also expected that over the next three to five years, Gulliver's owners will be able to pay off the portion of the debt they were unable to pay at the initial stage of the full-scale war.

For a stable loan repayment, it is critical for a BFC to avoid currency fluctuations. After all, the center does not work for exports and cannot earn foreign currency to repay the loan.

However, no one can guarantee this. Therefore, it will be extremely important for the overall stabilization of the situation to convert Gulliver's foreign currency loan into hryvnia. This will be an important step that will allow Gulliver to remain a successful commercial project and repay its obligations to state-owned banks.

To implement a plan to convert a foreign currency loan into hryvnia, a permit from the National Bank of Ukraine is required. This is due to the regulation of foreign exchange transactions and the financial stability of the banking system.

Experts commented to UNN that the National Bank does not even need to cancel the ban, but only to allow the bank and the client to decide individually whether it is advisable to convert a foreign currency loan into hryvnia in this particular case. Experts emphasize that if the bank and the client agree, there is no need to prohibit this, as it reduces the risk of non-performing loans and the accumulation of losses on borrowers' balance sheets. However, whether the National Bank will take such a step remains an open question.

Conclusion

The history of Gulliver's loan is an example of how large investment projects can face financial difficulties, but with the right and appropriate strategy and lender support, they can stabilize their position and continue to develop.

Converting a foreign currency loan into hryvnia could be a crucial step to stabilize Gulliver's financial position and ensure its continued success. Reduction of currency risks, predictability of expenses and reduction of the debt burden will facilitate faster repayment of the loan.

However, this requires a permit from the National Bank of Ukraine, which will ensure the legality and security of this transaction. Gulliver has every chance of remaining a successful commercial project with the support of state-owned banks and regulators.