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September 27, 2019 9:00 pm | FILED UNDER: business

Zdenek Bakala On Business, Politics, And OKD

By Matt Atlas Zdenek Bakala

An interview with Zdenek Bakala

 

The daily newspaper Denik N published an interview with Czech entrepreneur and philanthropist Zdenek Bakala today. In which Mr. Bakala shares his insights on business, the state of politics, OKD, and the importance of a free and independent media. The interview was conducted by email. Mr. Bakala’s lawyers provided responses where noted. The following has been translated from the Denik N interview.

 

Zdenek Bakala on Business

 

Denik N: What is your current business vision or a goal that you would like to achieve?

 

Zdenek Bakala: I am happy and grateful that thanks to my business, I get a long term chance to support values that I believe in, be it open and free fellowships, human rights or good-quality education.

 

Denik N: Which one of the companies in your portfolio is currently the most important to you?

 

Zdenek Bakala: Every investment means something else for me, it brings different opportunities and experiences, meeting inspirational people or the chance to be present at the creation of something exceptional. For example, it was my great pleasure to support the Warhorse developer studio – men, who are enthusiastic about their project and are determined to succeed in the global gaming business. Out of the current investments, Economia holds a special position. It is a matter of my heart.

 

Denik N: In the annual reports, you do not mention all the companies you own. Why? Could you send a full list of the companies that you own around the world, or that you own a share in?

 

Zdenek Bakala’s lawyer: These are Zdeněk Bakala’s private investments, which are not a subject to any statutory reporting and information obligations.

 

Denik N: What are your intentions with your domestic activities – are you going to continue to do business here, or do you plan to gradually terminate your business activities in Czechia?

 

Zdenek Bakala: A few well-timed divestment transactions (sale of property, editorial note) must not be interpreted as an exit strategy.

 

Zdenek Bakala on the importance of independent media

 

Denik N: What does the Economia media house mean to you?

 

Zdenek Bakala: It is more a question of value than of a regular investment for me. I believe in the importance of independent, professional journalism and through Economia media house, I can support it. I am proud that Economia’s journalists are amongst the most fearless and professional journalists of this country and that they have their loyal readers. This November, the opinion weekly Respekt will celebrate 30 years since its first issue.

 

Denik N: For a long time, Economia has not been doing well economically. Are you not considering to sell it? How is it different from your other business activities?

 

Zdenek Bakala: When the German Handelsblatt group decided to sell Hospodářské Noviny, many people worried that they might lose their independence. Therefore, in the case of this acquisition, the recoverability of the investments wasn’t the main aspect. The main aspect was to preserve the independent voice in the Czech media, which needs to be protected even today. And that is why Economia is not for sale.

 

OKD

 

Denik N: How do you perceive the criticism and the criminal complaints that are being directed to you due to your role in OKD?

 

Zdenek Bakala: It is somewhat unfortunate that the public is often falsely informed about the situation around OKD. The group of investors that I was a part of at a time contributed to the fact that OKD became one of the most progressive mining companies in the world. The analytic studies confirm that the unexpected and long-term fall in black coal prices during the current decrease in demand had an impact on many other global companies specialized in coal mining, not only OKD. These events were sadly out of our control.

 

Denik N: Why did you refuse to testify in front of the OKD inquiry commission?

 

Zdenek Bakala: Some politicians, including some of the inquiry commission’s members, did not keep it a secret that they have already decided upon my guilt. In this politicized environment, my testimony would likely be misused to escalate the political pressure on the decision-making process of the police, the state prosecution and the courts. While every human has the right for an independent assessment of his case by the courts that are not a subject to any superstition or political powers’ influence.

 

Acted in good faith

 

Denik N: Do you regret any of your decisions regarding OKD?

 

Zdenek Bakala: According to my belief, everything always took place in a good faith and with the highest standard of care. All steps, in which OKD took part in the past, including financial transactions and distributions, happened in accordance to the law and under standard conditions, which was monitored and confirmed by many authorities and offices. It is worth mentioning that the group’s stocks were listed on three European exchanges and the company was therefore under the microscope of the stock exchange’s regulators, domestic and global investors.

 

Denik N: You are being blamed for promising the sale of OKD flats to its tenants for lowered price, but that did not happen. How do you react to that?

 

Zdenek Bakala’s lawyer: What was later called a ‘promise’, was initially intended as the investor’s announcement of a certain business plan that was based on circumstances of given time and accessible information. It is clear that when the circumstances change, the business plans that are based upon them change as well. And the circumstances did change significantly between 2004 and 2006. Apart from the beginning of the actual release of the rents regulated by the state since 2006, a management composed of specialized experts was established for housing management. They found out that rather than to sell individual flats out of a strongly neglected portfolio, it would make much more sense to invest into preserving and developing said portfolio and the whole locations in the Morava-Silesia region (and those investments were in the value of many billions of crowns) and to rather rent those flats.

 

Hence, the investors’ decision not to sell individual flats was justified and supported by a rational management analysis. By no means is it true that Zdeněk Bakala broke his binding promise to the tenants, while he had only partial influence in the final decision. It is necessary to add that it has already been repeatedly confirmed in arbitration and in court proceedings that during the whole time since 2004, a breach of obligation to offer the flats to the tenants did not take place.

 

Denik N: How do you perceive the criticism around the price of the flats, which have been included into OKD?

 

Zdenek Bakala’s lawyer: It is often being noted that the value for one flat was estimated to CZK 40 thousand, which is being called absurd. However, it is not in any way absurd when we realize that apartment buildings must be priced differently than individual flats – and by no means as a summary of prices, for which the individual flats could be sold on the market. That is because for the owner of the apartment building with rented flats, the value is represented by what kind of rent the flats bring him. And in the setting of 2004, when the strict regulation of rent took over, this value in conversion to one flat was low. According to some analysis, the value could in reality be even lower than the mentioned 40 thousand per flat.

 

In can also be viewed through different optics. In 2004, OKD owned some 5. Thousand apartment buildings. Those were under-invested by many billions of crowns, so reparations needed to be done on that level. Meanwhile, the biggest part of the flats was from the 50’s of the 20th century, more than 200 of them was even from the 19th century and only 20 houses were less than 20 years old by 2004. Those details, even without any detailed analysis, suggest that whoever might want to buy this OKD’s portfolio in 2004 was not ready to pay any large price. Therefore, it can be generally said that the price estimated for the purposes of sale of the rental apartment buildings has nothing to do with the price considered by whomever would by an individual flat for the purpose of living ‘in their own’. Meanwhile, all the current objections are based on a misunderstanding of this difference.

 

It needs to be said that the following de-regulation had a completely essential impact on the later pricing. Along with the massive investments and professionally prepared business plan, that is the reason why, through the optics of later years, the price of the flats in the expert opinion of VOX Consult and Komerční Banka might appear as unequally low.

 

Denik N: Do you have any share in the funds or companies that now indirectly control the current owner of OKD flats, Residomo?

 

Zdenek Bakala’s lawyer: Zdeněk Bakala has no ownership interest, albeit indirect, in Residomo company.

 

Denik N: Can you state the price, you paid for Karbon Invest?

 

Zdenek Bakala’s lawyer: This information was and remains protected by a secrecy clause. Zdeněk Bakala, although he was not directly a party to the sale, wants to honor this clause. Maybe, it could be said in general that if appropriately converted, the purchase price of Karbon Invest shares would imply a price per OKD share, which would be significantly different from the price for which Karbon Invest bought one OKD share from the National Property Fund.

 

Denik N: How did you perceive the verdict, which allowed Lubomír Zorálek to call you a ‘crook’?

 

Zdenek Bakala’s lawyer: We will not go back to events that are seven years old or to personal diatribes from the politicians’ side. We consider it more important to explain all charges brought up without reason, concerning OKD company’s economy, with factual argumentation.

 

Proud Czech

 

Denik N: What are your reasons for visiting Czechia less often?

 

Zdenek Bakala: We have been living outside of the Czech Republic for several years. I can actually say that I have spent a majority of my life abroad. However, I am and always will be proud to come from Czechia. There are so many talented people in this country, especially amongst the young, so I look upon its future with optimism.

 

Denik N: You currently live in the USA. Why exactly did you choose this destination?

 

Zdenek Bakala: I am grateful to that country for gaining long desired freedom and education there, at a time when the communist regime of Czechoslovakia denied me both of those things. In the United States, I have worked for several prominent investment companies and after I came back, I could put the experience gained to use while transforming Czech economy, among else by founding the first private investment company in the country.

 

Denik N: Which country do you now consider your home?

 

Zdenek Bakala: We currently live and work on several continents and  I consider “home” wherever I can be with my family and friends. I feel responsibility towards all communities which have provided us with home or space for business. Therefore, this year, after the Czech Republic and Switzerland, our third Bakala Foundation was created in the USA.

 

Zdenek Bakala on Politics

 

Denik N: How do you rate the current political situation in Czechia and the direction of domestic politics?

 

Zdenek Bakala: In 1989, the Czechs decided what character should the country that they live in have. They leaned towards an open and modern democracy in the heart of Europe. The enthusiasm of people across all ages, who went to the streets, shows that the Czechs are ready to defend the democratic values, and that applies to present day as well.

 

Denik N: In the past, you supported various political parties. Are you planning to contribute to any current political formation in Czechia?

 

Zdenek Bakala: For several years now, I have not provided any Czech political party with a gift, but I do get involved, not only through financial support, in the activities of Aspen Institute, which connects the new generation of progressive leaders, not only in the Czech Republic, but in the whole region.

 

Denik N: You also own several properties in Czechia, what do you plan to do with them?

 

Zdenek Bakala: Nine years ago, I had the opportunity to contribute to the development of Prague’s Karlín by revitalizing the historical industrial objects and by building a unique complex called Forum Karlín.

 

As any other investor, I constantly seek for such opportunities, where I can help building something beneficial with a more permanent value. The standard goal with the current portfolio is to develop it and use its commercial potential the best we can.

 

 

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