11 March 2010
By Alexander Teddy
In a young real estate market like Russia’s, reputation is key. Following a turbulent year of asset seizures and poor financial results for some companies, it is likely to pay for investors to know just whose experience stands behind the major local development firms.
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This year brings hope for more positive financial data in Moscow, and analysts see the year as a time for reassessment and preparation for a distinct real estate deal upturn in 2011. Jones Lang LaSalle maintains a “fundamental belief in a 2011 pick-up,” while “slow and gradual growth” is Aecom’s forecast for the most prominent actors in the development sector over the next 12 months, the company’s spokesperson, Olga Drabkina, revealed.
Financial hardship for many large projects and the developers undertaking them was a recurrent theme throughout 2009, and major news has tended toward refinancing plan announcements, asset seizures or corporate ownership changes. The context for this has been a 63 percent drop in commercial real estate investment in the city versus 2008, according to Cushman & Wakefield Stiles & Riabokobylko.
While one can identify key firms in Russia’s real estate market, it is often unclear who the personalities are that stand behind them. This may be crucial when judging which individuals, based on their track records to date, are capable of steering their companies into positions of success over the next year and safely handling investors’ money. “It is definitely important for investors to know who the owners of these big development companies are,” said Tigran Hovhannisyan, a real estate analyst at Uralsib, an investment bank. “This is especially the case [in Russia] as many shareholders are top management, and there are personal characteristics at play. Many non-traded companies are still falling apart.”
In addition to the ownership changes, court hearings have regularly meant companies have been forced to take on or shed business arms and projects, with bankruptcies and demands for them appearing with frequency in arbitration declarations among both small and large firms. Alfa Bank launched a law suit against Glavmosstroi in July. In December, Kopernik’s disposed subsidiary, MIAN, sought to bankrupt the former’s development arm in an example of complex asset maneuvers in the face of distress. Meanwhile, developer RTM itself filed for bankruptcy in Moscow.
Maxim Gasayev, managing director at Colliers International in Russia, does not see “mass bankruptcies” arising in the coming months, although he is sure further names will exit the market. “Yet in the future, more likely than the takeover of particular development firms, will be the acquisition of decent buildings or sites,” he said. “There is no monopoly of the Russian real estate market — no one who will dictate the market’s condition. This is in contrast to a few years ago, when Enka [a Turkish developer] was a clear leader in the office market.”
Developer LSR is one listed company that noticeably and successfully bucked the hardship trend in 2009, as it weighed up the prospect of a secondary listing later in 2010, but this is an exception to the rules that the crisis has dictated.
Assets have been exchanged and re-exchanged, so tailing the transfer of company stock from one entity to another is a task in itself. But if 2009 has been the year of chaos, 2010’s semi-settling dust indicates that it is the right time to see who stands behind which Moscow developer. Last year’s market tumble meant that in many ways the real estate sector was too much in flux for a careful assessment to be made of its constituent actors; it was, at times, not even clear who they were. “The crisis has left a lot of sick companies,” Hovhannisyan said, “even now a selective approach is required when considering them [for investment] — a case-by-case basis.”
Owning Moscow
Of all the major brands in Moscow development, Sistema-Hals has probably the most widely recognizable corporate name attached to it. One of the few developers floated on the main London Stock Exchange, indeed the first to do so, it is no surprise that a large proportion, just over 21 percent, of its shares are still a free float on the exchange. Its founder, AFK Sistema, is currently under the control of its chairman, Vladimir Yevtushenkov, and in fact only owns 19.45 percent of what on the surface looks like its development subsidiary. The state bank VTB has been, since Dec. 3, the majority holder in Sistema-Hals with a 51.24 percent share. Given the collateralized-asset seizures by the giant state lender since the crisis began, such as hundreds of thousands of square meters in Moskva City, VTB saw strategic sense in gaining majority ownership of a development company — it has an option to take an absolute majority in Sistema-Hals, if its management sees fit.
If 2009 has been the year of chaos, 2010’s semi-settling dust indicates that it is the right time to see who stands behind which Moscow developer.
Holding company AFK Sistema itself, according to its web site, is 62 percent owned by Yevtushenkov, although this figure comes from late 2007. While no other public documents contradict this information, Sberbank and VTB are big lenders to the group and, as such, it is possible that collaterization of assets makes the de facto share position different. Another interesting twist in the Sistema tale is the multitude of Internet reports that say Yevtushenkov’s wife is a relative of Yelena Baturina, wife of Moscow’s mayor, Yury Luzhkov. Natalya Yevtushenkova is a member of the management of the Moscow Bank for Reconstruction and Development, a subsidiary of AFK Sistema. Several of these reports suggest that the Luzhkov-Baturina and Yevtushenkov couples are closely aligned; Yevtushenkov has himself regularly and publicly expressed his allegiance to Luzhkov.
Baturina herself is a formidable force in the Moscow development sector. Inteko, a leading development firm, stated in early December that Baturina owns it 100 percent; a “shareholder breakdown” that the closed-joint stock company provided listed only her. A search on Russia’s corporate registry database, the Unified State Registry for Legal Entities, or EGRYUL, revealed two initial shareholders in the company — Baturina and her brother, Viktor Baturin, with a small minority stake. In early 2007, it was widely reported in the press that Baturin, who founded the company with his sister, was suing her for unfair dismissal from Inteko.
Baturina, whose direct communication with the media is rare, fights off many claims that her husband helps ‘tweak’ her business successes in the real estate market and frequently uses lawyers to dispel suggestions of lavish overseas acquisitions or of undisclosed interests in other development firms active in Russia.
Nevertheless, a Vedomosti article published in early December 2009 laid down a distinct shareholder trail, showing that a company affiliated to Bank of Moscow (48 percent owned by Luzhkov’s Moscow government) was responsible for having bought land from Baturina’s Inteko at a “generous rate” in the summer of 2009.
Equally active in Moscow, yet essentially a foreign firm, AFI Development is one of the seemingly most affluent of the developers currently in Moscow. The firm is a Russia-focused, yet effectively Israeli-owned, venture: it began as a personal real estate project of Lev Leviev, a Tashkent-born Soviet emigre to Israel. In 2009, AFI’s profit rose eight-fold over the first three quarters, and in fall 2010 it is due to open Mall of Russia — a 550,000-square-meter shopping center located in the semi-frozen commercial district of Moskva City. In January, the company said that the project financing is in good health.
Leviev is the 52 percent majority owner of Africa Israel Investments, the parent company of AFI Development through what is now a slender majority. A trip into the offices of AFI shows photos of Leviev and Russia’s prime minister, Vladimir Putin, along with American film-stars — something of an illustration of the prominence he has gained through his successes with Africa Israel, in particular in the diamond industry, since the 1970s. Leviev’s personal star success has been slightly tainted in recent months as his heavily leveraged position in Africa Israel has prompted him to swap around 17 percent of stock in AFI for debt through a second share issue in AFI. Ten percent of AFI belongs to Alexander Khaldei, the company’s CEO, via a Geneva-registered company, Nirro Group; the remainder is on a free-float on the London Stock Exchange.
Several of the leading development firms in Moscow were unwilling to disclose ownership details on any level with the press.
Mirax is a name no observer of the Moscow real estate sector could fail to miss, least of all after the company’s chairman, Sergei Polonsky, expressed his disdain for anyone unable to make a billion. Polonsky, once nominated entrepreneur of the decade, has fallen from grace as Mirax suffered increasing financial difficulties caused by the withering of the real estate boom.
Following the recent resignation of Dmitry Lutsenko, a member of the company’s board, Mirax will lose its debt-restructuring architect. Mirax’s liquidity — or lack of it — has been a major source of news since the crisis began and yet it is still not clear exactly who owns how much of the company. Mirax refused to comment on the company’s ownership structure, although Polonsky is routinely reported in the press to be the majority beneficiary.
The company was founded by both Polonsky and Artur Kirilenko after the two originally set up St. Petersburg-based Stroimontazh in 1994. This latter company has been reported to be in financial dire straits and recent registry information shows that it is split 90:10 between Kirilenko and Polonsky respectively, although Polonsky was reported by Vedomosti sources to have disposed of this stake in November, just as Kirilenko relinquished any holding in Mirax.
Mirax itself originally had four partners alongside Polonsky, three of whom have left the company, leaving only Maxim Temnikov, a current board member and the next executor of Lutsenko’s duties.
Mirax’s founding shareholders, EGRYUL showed, were two offshore entities in the British Virgin Islands: Sunville Trading Limited and Mirax International Limited. No later information was available about Mirax’s shareholding structure, while ownership of the two BVI companies is not public.
One of the more complex sets of construction companies in Moscow revolves around Oleg Deripaska. His Basic Element, or Basel, holding company, of which the businessman is sole owner, has variously sized stakes in four Russian construction-based companies. Most significantly, it is the full owner of Glavstroi and its subsidiary Glavstroi-Management. Basic Element owns 75 percent of Transstroi, said Vitaly Korolyov, Glavstroi spokesman, while it also owns three-quarters of Glavstroi St. Petersburg. Additionally, Basel controls the whole of Altius Development, responsible for parts of the Sochi Olympic construction.
Deripaska’s construction and development ventures had a distinct Austrian twinge until recently, when he disposed of a 25 percent stake in leading Austrian contractor Strabag in exchange for a single share with a buyback option for his previous stake. This was extended in November at a cost of $68.5 million. In the meantime Strabag has been plagued by regulatory conflicts with the Moscow authorities, including threats of license revocation and a large tax bill. Deripaska’s other Austrian construction interest was in infrastructure builder Hochtief, but Basic Element confirmed that the company is no longer in its asset portfolio.
Shalva Chigirinsky is a name that cannot fail to get readers’ attention. Once a leader of Moscow’s real estate race for prominence and success, Chigirinsky’s has been a rough ride in recent months. His Russian Land company, a Jersey-incorporated entity, was the vehicle he used to develop such sites as the Russia Tower site in Moskva City, via ST Towers (STT). Designed by Norman Foster, the project was halted after 14 months and canceled several months later in June 2009. Another Foster-Chigirinsky project looked to be in the making until ST Development, a separate Chigirinsky-controlled company responsible for the site of the former Hotel Rossia in central Moscow, lost a lawsuit in February 2010 against the Moscow government for compensation for allegedly unpaid services on the site. ST Development, which had been working with Foster’s company on the site, fell into financial difficulties in 2008 and was forced to stop work. Numerous attempts to contact ST Development’s lawyers to ascertain the ownership structure of the company were unsuccessful, but EGRYUL listed a single Cyprus-incorporated company, Dabstorm Holdings Limited, as the owner.
Chigirinsky has faced several lawsuits, notably from VTB in London, in connection with unhonored debts. It is not clear exactly what proportion of the construction company Russian Land he still owns, but documents obtained from the UK’s High Court of Justice for a freezing order of Chigirinsky’s assets in July 2009 showed that he owned a house in Belgravia, London, now sold, and Passazh, a luxury retail arcade in St. Petersburg, also now sold, sources told reporters from The St. Petersburg Times in summer 2009, together with a host of plots and properties in Moscow: the Old Sovietskaya Hotel on Leningradsky Prospekt, a one-hectare plot for the New Sovietskaya Hotel in the same area, Nikitsky Pereulok 5 office block, and half of the Mitino development site. He was also listed as owning 400 hectares in Kaliningrad, developments in St. Petersburg, Klin, half of a ‘Tea Factory’ site in Irkutsk, the Krasnaya Polyana Olympic Center in Sochi and a property in Krasnodar. He was also attributed a large mansion in southern France, formerly belonging to Jean-Bedel Bokassa, the African dictator. An acquaintance of Chigirinsky believed him to be living in France, although also maintained that he had sold the $250 million house.
More successful at retaining financial buoyancy in the sector have been Mikhail Prokhorov, via holding company Onexim, and Vladimir Potanin, via his Interros structure. The two remain joint shareholders in Open Investments, or OPIN. The developer is responsible for the Novotel Moscow hotel and the Meyerhold Center on Novoslobodskaya Ulitsa, yet Hovhannisyan described OPIN as “basically a dying company in the sector — it is one of the largest land owners in the Moscow region and is now far more a land bank than a developer.” It is listed on the Russian RTS exchange, while Prokhorov and Potanin, formerly business partners in a range of industries via their joint vehicle KM Invest, each own significant stakes in the business.
Apparently contradicting the shareholder information on the OPIN web site, which is dated Jan. 1, 2010, Prokhorov was reported in Vedomosti in mid-2009 as having a 42 percent share in the company. On the site, Interros structures are shown to hold about 40 percent of OPIN, with Onexim at just under 30 percent.
EGRYUL gave OPIN’s founder shareholders as Interros Estate and Cyprus-based company, Motherlane Properties Limited. However, this information is not required to be updated with the state registry as OPIN is an open joint-stock company listed on the stock exchange.
Several of the leading development firms in Moscow were unwilling to disclose ownership details on any level with the press, although such information is often, albeit belatedly, available on public record in Russia. Barkli, PIK Group and Don-Stroi all gave such refusals, although Barkli is known to have laid down 51 percent of its shares to VTB as collateral on loans.
Barkli is widely believed to be controlled by Leonid Kazinets, and Don-Stroi by Maxim Blazhko, although VTB and Sberbank have recently taken over subsidiaries Don-Stroi Invest and DS Development respectively.
Kazinets was the only name given by EGRYUL as a shareholder in Barkli, although one Alexander Baiyer was also recorded as a physical entity able to act on the company’s behalf with power of attorney.
PIK has been radically restructured after corporate raider Suleiman Kerimov, as part of an aggressive real estate trawl via investment company Nafta-Moskva, consolidated a 45 percent stake in the developer, leaving the founders, Kirill Pisarev and Yury Zhukov with a 33 percent share. It is unclear how this latter stake has been divided. Kerimov’s appearance on the real estate scene in Moscow has been recent and investment-driven in what Hovhannisyan calls a bid to develop “pitfall investments” that can be used to support his Nafta portfolio. The exchange of top executives in February demonstrated an arguably hands-on approach in PIK management by Kerimov’s team.
Pisarev and Zhukov were indeed listed by EGRYUL as the sole founding shareholders in PIK Group, with approximately 71 percent and 29 percent of the total equity in the company respectively. Although the register listed a long series of shareholder changes in PIK, details were not given as to how Pisarev and Zhukov currently sit in the hierarchy of shareholders — Kerimov and Nafta were not mentioned on the documents either.
Read more: http://www.themoscowtimes.com/realestate/quarterly/article/400911.html#ixzz1cGdtqY8I
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