City of Zurich must save Kongresshaus

The fruitless conversion period and the pandemic have had a massive impact on the Kongresshaus AG. Thanks to a loan, bankruptcy has been averted for the time being, but now the city has to take over the operation.

At the weekend, the Zurich Congress Center will be open to the public after it has been renovated.

Christoph Ruckstuhl / NZZ

Dramatic tones are struck in the annual report of the Zurich Congress Center: the annual result achieved is “devastating”, it is said, for example. The Corona pandemic has caught the Kongresshaus Zürich AG and brought it to the brink of insolvency. The impending liquidity crisis could only be averted at all thanks to the city’s commitments as the largest shareholder.

Missing reserves for Corona

The business construct in Zurich’s Kongresshaus is not easy to understand: the owner is the Kongresshaus Foundation, which in turn hands over the various rooms and responsibilities to its two tenants. The Tonhalle-Gesellschaft Zürich is responsible for the Tonhalle area, while the Kongresshaus Zürich AG is responsible for renting out the congress rooms, the restoration and maintenance and has now got into financial difficulties.

However, the pandemic is not the only reason for the unfortunate situation of Kongresshaus AG. The four-year conversion period had already given the operating company a hard time. In contrast to the Tonhalle, which was able to temporarily relocate its concert operations to the temporary location on the Maag site, the Kongresshaus AG had to shut down operations completely and later start up again. This involves around eighty full-time positions and around four hundred temporary workers.

The company largely used up its reserves to bridge the four-year construction phase. The necessary cushions were then missing to deal with the corona problems. Despite various savings measures such as “adjustment of the job plan” or short-time work, the deficit was significantly higher than budgeted: instead of minus 3.0 million francs, the result was a loss of 5.34 million francs. This was due to many canceled or postponed events. Also, the restaurant could only be used to a reduced extent.

As an immediate measure, the Zurich City Council granted Kongresshaus AG a repayable and interest-bearing loan of CHF 1.9 million in March. This averted bankruptcy, which according to the city council would have had devastating effects on the cultural, scientific and business location. Even then, however, the city council indicated that further measures were needed to reorganize the AG.

90 percent of the shares to the city

The city council has now approved this for the attention of the municipal council. The central measure is to increase participation. With a stake of 7.6 percent, the city is already the largest shareholder. Now the par value of each share is to be reduced from 1,000 to 100 francs, and at the same time the capital will be increased by 4.5 million francs, bringing it back to the original value of 5 million. This combination of capital reduction and capital increase is also called “harmonica”. The shareholders will decide on the Board of Directors’ proposal at an extraordinary general meeting in the summer.

According to a press release, the city wants to contribute “maximum” CHF 4.5 million to this renovation measure. The amount is reduced depending on the subscription by other shareholders. That should be rather illusory, the city will probably have to spend the amount on its own. However, in one fell swoop it would no longer have a 7.6 per cent stake in Kongresshaus AG, but over 90 per cent.

The Kongresshaus Foundation as the owner also proposes operational measures to stabilize the Tonhalle and Kongresshaus. It is mainly about the unbundling of functions. In the future, the Tonhalle will be responsible for renting out its halls itself. This eliminates interfaces and the external organizers would only have one contact person in-house for their events.

The rents for the Tonhalle and Kongresshaus AG are also to be adjusted. That of the Tonhalle will be increased by 217,000 francs – with the city continuing to bear the full costs. That of Kongresshaus AG will be reduced somewhat because, as stated in the media release, the amount is well above the usual market rate.

Because this means that the Kongresshaus Foundation, as the owner, has less income, it is being compensated by the city with CHF 950,000 more than before. This is to ensure that sufficient funds are available for maintenance and future renovation. As part of a pilot project, the rental costs for the Kongresshaus and Tonhalle halls are to be reduced somewhat. The city supports this with an annual deficit guarantee of CHF 100,000.

Mayor is confident

Has the city examined alternatives to the high stake in Kongresshaus AG? Yes, says Mayor Corine Mauch, other options have been examined and the consequences of bankruptcy have also been examined in detail. Due to the close ties in the house, the Tonhalle would have been severely affected by bankruptcy. A sale to a third party was also considered. However, given the problems in the event industry, this would hardly have been possible – or only at a very bad price.

The aim of the various measures is now to stabilize operations in the long term. Corine Mauch is confident that this can succeed. But it is a demanding task. The city is required to accompany the process very closely. What will ultimately happen with the city’s high stake in Kongresshaus AG will only be decided later. She is very open to talking to the municipal council about how decisions should be made after successful stabilization, says Mauch.

The Kongresshaus AG itself is confident that the restructuring of the company can succeed. It is noted in the annual report that bookings are already increasing again. And the second half of the year is even very well booked again. Numerous contracts have already been signed for the following years. However, there are also fears of further setbacks if Corona really hits again.

It is not only with the current financial problems that the congress center is making some negative headlines. Unexpected cost overruns also occurred during the renovation, which lasted from 2017 to 2021. The Zurich municipal council grudgingly approved an additional loan of 13 million francs – on top of the original amount of 165 million.

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