Pakistan's Plan to Sell Stake in Roosevelt Hotel
Pakistan is moving forward with plans to sell a minority stake in its New York-based Roosevelt Hotel, marking a significant step in the country’s broader strategy to offload loss-making state-owned assets. The government has initiated the process of hiring a new financial adviser for the partial sale, as confirmed by Adviser to the Finance Minister, Khurram Schehzad. He emphasized that the transaction is expected to be completed this year.
The Roosevelt Hotel, a historic property located in Manhattan, has been a valuable foreign asset for Pakistan. However, it was closed in 2020 and has operated intermittently since then, including as a shelter for migrants. The hotel is part of a larger effort under a $7 billion agreement with the International Monetary Fund (IMF), aimed at restructuring Pakistan’s state-owned enterprises.
A key development in the process is the resignation of Jones Lang LaSalle (JLL) as the financial adviser for the hotel’s privatization. JLL cited a conflict of interest due to its own potential interest in acquiring the property. This move has raised concerns about the timeline for the sale and the potential financial implications for the national exchequer.
According to a report, if the Privatization Commission accelerates the process of hiring a new financial adviser, it could take up to 18 months. The report also claimed that the delay would result in at least $50 million in debt servicing and maintenance costs. However, Schehzad refuted these claims, stating that the advertisement for the new adviser has already been published, and the selection process is underway.
The government has decided not to pursue an outright sale of the hotel but instead adopt a joint venture model to maximize long-term value. Schehzad explained that JLL had already completed the entire transaction structure for the joint venture, which was approved by both the Privatization Commission and the federal cabinet. He added that the new adviser will follow the same structure and focus solely on finding a development partner for the venture.
Schehzad clarified that there would be no delay of one-and-a-half years as reported. Instead, the transaction is expected to be completed within the year. He noted that JLL resigned because it wanted to become a partner on the buyer's side, creating a conflict of interest. JLL even committed to returning all the money it had received as the financial adviser, according to Schehzad.
There have also been concerns about a $142 million loan provided by the National Bank of Pakistan to the Roosevelt Hotel in 2020. A financial body reportedly sent a communication to the finance ministry regarding the fate of this loan after JLL’s resignation. However, Schehzad confirmed that the communication was routine and stated that the issue would be addressed when the partnership agreement is signed.
Expert Opinions on the Process
Pakistani economists have acknowledged JLL's resignation as a setback but believe it will not derail the privatization process. Dr. Sajid Amin, deputy executive director at the Sustainable Development Policy Institute (SDPI), expressed disappointment that the property could not be privatized despite its prime location. He emphasized the need for better planning and engagement to successfully privatize such assets.
Amin also noted that the withdrawal of the advisory firm would not significantly impact the IMF reforms agenda, as JLL left over a conflict of interest. He added that the government will find a new financial adviser, which will demonstrate that the IMF commitments are on track.
Dr. Ali Salman, executive director at the Policy Research Institute of Market Economy (PRIME), praised the joint venture approach as a positive model for privatization. He argued that the cost of any delays could be offset through a professionally and transparently executed joint venture deal. Salman also called for increased capacity within the Privatization Commission to ensure timely and informed decisions.
Overall, the process of selling a stake in the Roosevelt Hotel reflects Pakistan’s broader efforts to manage its state-owned assets more effectively. While challenges remain, the government remains committed to completing the transaction within the planned timeframe.