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Analysis & Opinion
13.10.11 A Banker's Building Blocks
By Tai Adelaja

As the Russian financial landscape evolves and competition intensifies, the country’s top lender, Sberbank, has developed niches in non-traditional areas such as real estate development to get the best of both worlds. Dabbling in real estate, analysts say, could help Russia’s oldest bank retain its position as the country’s most trusted financial institution. Sberbank, which has spent the past several months consolidating its position through mergers and acquisitions, is reportedly planning to undertake the reconstruction of architectural monuments in downtown Moscow at the behest of the City Hall.

Sberbank Investments, the bank’s investment arm, is set to participate in the privatization of 50 percent shares in City Hall’s property developer, MosStroyVozrozhdenie, RBC daily reported on Thursday. MosStroyVozrozhdenie was set up under former Moscow Mayor Yury Luzhkov as a vehicle to transform hundreds of abandoned buildings into luxury apartments, hotels and ultra-modern office buildings.

City Hall and Sberbank may form a partnership as early as next week, when a 50-percent stake in the property developer will be put up for auction, the paper said. City Hall is expected to keep the other 50 percent. The asking price in the newly-formed developer is a symbolic 120,000 rubles ($3,800), the paper reported. Sberbank is expected to pay for its fifty percent stake in cash while City Hall will gradually contribute architectural monuments in need of reconstruction and restoration.

Sberbank appears to be the only bidder for the property developer, as it is the only company that has held preliminary talks with city officials, the paper reported, citing sources close to City Hall. In addition to pouring in funds, Sberbank will directly engage the newly-acquired Inteko real estate firm in the reconstruction of the historical center of Moscow, experts say. Sberbank Investments recently teamed up with Binbank chief executive Mikhail Shishkhanov to buy the Inteko construction company, which once belonged to Luzhkov's wife, Yelena Baturina.

Before his ouster last September by President Dmitry Medvedev, Luzhkov floated the idea of using MosStroyVozrozhdenie as a vehicle to reconstruct and restore the city's abandoned architectural monuments. The powerful ex-mayor had even ordered city officials to take inventory of old and dilapidated houses scattered across the city, RBC daily said. In May 2010, city officials came up with a list of 291 such buildings in different zones in Moscow, 29 of which are classified as architectural monuments.

Luzhkov had hoped to pay for the reconstruction of 19 of the city's architectural monuments, valued at 778.5 million rubles ($24.7 million), partly by selling shares in MosStroyVozrozhdenie and partly by attracting the Bank of Moscow as a financial partner, the paper said. However, Luzhkov was unable to realize his plan before being fired amid corruption allegations. State-controlled VTB, Russia's second largest lender, took control of the Bank of Moscow earlier this year but soon found almost half of the bank's loan book to be questionable. This prompted the federal government to disburse a 294.8 billion-ruble ($9.2 billion) 10-year loan to prop up the bank in what turned out to be the biggest banking bailout in the nation’s history.

However, Moscow Mayor Sergei Sobyanin, who replaced Luzhkov last October, has decided to push ahead with the multimillion-dollar makeover of the city's dilapidated buildings. Stanislav Kuznetsov, deputy chairman of Sberbank, confirmed City Hall has been scouting for investors among top Russian financial players to help finance the reconstruction of large swathes of architectural monuments situated in various parts of the city. He declined, however, to comment on the possible role Sberbank could play in the projects to yield hefty returns.

City Hall officials declined to comment for this story, but Alexander Kibovsky, who heads the city's Department of Cultural Heritage, told RBC daily earlier that the government is casting its net wider for investors to reconstruct all the architectural monuments that would be officially transferred to MosStroyVozrozhdenie. Sberbank, he said, is the kind of “powerful partner” the city needs.

If indeed the project goes ahead, it will not be the first attempt by the top lender to venture into non-traditional territory. Vedomosti reported in July that Sberbank head German Gref was actively lobbying for the bank to participate in the construction of real estate projects as part of the planned expansion of Moscow. Gref’s pitch was for the Rublyovo-Arkhangelksoye plot, which houses the so-called Millionaires' City project, the business daily reported. The project, which consists of 2.7 million square meters of building space on 430 hectares of land – three kilometers from the Moscow Ring Road – was being developed by Nafta Moskva's Suleiman Kerimov. Shishkhanov, Binbank’s co-owner, acquired the project in 2008 using a 104 billion ruble ($3.7 billion) credit from Sberbank. But after the financial crisis that rocked the domestic real estate market, Sberbank took control of the plot.
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