Russian Construction Sector – A Viable Investment Opportunity

THIS POST WAS ORIGINALLY PUBLISHED AUGUST 08, 2007

Russian Construction Sector – A Viable Investment Opportunity

In my posts I repeatedly note that the Russian construction sector is a extremely attractive for investor community. Recent news reports confirm this. In fact today’s U.K. Independent 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 1.5m square feet of space becoming available before 2011.” And it is true. Here are some latest developments that prove this idea.

The first Russian private equity fund to participate in development of infrastructure was formed. This week 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” perspectives are mentioned. Macquarie Renaissance is based in Moscow and has already a team of 10 dedicated finance professionals. According to press reports the JV projects will have at least $ 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. Very interesting obestervation is produced by the 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 investor to note RGI and acquired 15% of equity.

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 (USD 472 million) loan to STT Group development company; the company itself announced its IPO plans.

ABSOLUTE-Development – a part of Absolute Group is planning IPO in 2008

For those who read Russian, I forward you to the Vedomosti Daily detailed analysis of the Russian developer sector.