Director of Equity Financing, FINAM Investment Company, Moscow
Construction of the Moscow City complex in 2005...compared to today
Photo by: Moscow Government International and External Economic Relations
In my Russia Blog posts I have written repeatedly about how the Russian construction sector is proving to be extremely attractive to global investors. Recent news reports confirm this view. In fact the U.K. Independent recently produced a short overview "A Global Property Boom: Russian Style" that describes what is going on in Russia.
"The place to be for booming commercial property development right now is Moscow. According to international property analyst Knight Frank, new developments of high-grade office space in the Russian capital have doubled since 2003, with a further 1.5 million square feet of space becoming available before 2011." As a Muscovite who has observed these tremendous changes firsthand, I can confirm this.
A Russia Today TV documentary about Moscow's changing architecture
The first Russian private equity fund dedicated to investing in infrastructure was formed this month. During the first week of August it was announced that Macquarie Bank (ASX:MBL) and Renaissance Capital established a joint venture, Macquarie Renaissance, to develop infrastructure advisory and fund management opportunities in Russia and other CIS countries. It is interesting that in the press-release "the 2014 Olympics in Sochi and beyond" several perspectives are mentioned. Macquarie Renaissance is based in Moscow and already has a team of ten dedicated finance professionals. According to press reports, these joint ventures will have at least a $100-$150 million start threshold.
London & Regional Properties, the British real estate developer, announced that it plans to spend at least $1 billion on projects in Russia in the next 12 months. Another interesting obestervation was produced by this company: "Russian yields have always been higher than the rest of Europe, reflecting the perceived risks and low transparency that have traditionally deterred institutional capital. However, this year has already witnessed the successful London flotation of Russian developers such as Sistema-Hals, Mirland and AFI, and the creation of AIM-listed funds, including Metro Baltic Horizons. As more western capital flows east, the safer the market seems". According to London & Regional Properties Russia may attract investment from foreign real estate companies worth $7 billion in 2007, up from $4 billion last year.
A Russian property development and management company R.G.I. International Limited (SEA:RGI) announced that Charlemagne Capital Ltd. (SEA:CCAP), an independent investment management group, acquired about 3% of its equity (at the cost of $37.5 million). RGI is involved in the development and management of high-end office, retail and residential properties in central Moscow and the surrounding areas.
It is interesting to note that Morgan Stanley was the first major western institutional investor to acquire RGI, buying 15% of RGI's equity. Meanwhile, Deutsche Bank (FRA:DBK) continues its investments in Russian developer sector. Earlier it allocated $600 million to DekMos construction company for the project to reconstruct the Hotel Moskva (Moscow); established a JV with Austrian construction company Strabag AG (FRA:STB) that operates in Russia. At this time it was announced that DB has agreed to provide a 12 billion RUR (U.S. $472 million) loan to the STT Group real estate development company; STT itself recently announced its plans for an IPO.
ABSOLUTE-Development -- a part of the Absolute Group - is planning an IPO in 2008.
For those who read Russian, this link at Vedomosti Daily provides a detailed analysis of the Russian real estate development sector.
You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.