Tycoon Sees Hard Landing For Developers In Russia

Source : The Business Times, June 19, 2008

Mikhail Prokhorov says he is looking to acquire distressed firms

(MOSCOW) Russia's property market, facing soaring materials and credit costs, risks a hard landing that could cause many developers to collapse, the country's fifth-richest man said yesterday.

Mr Prokhorov: Studying nine property projects worldwide, including an elite resort development in South-east Asia

In an interview with Kommersant newspaper, tycoon Mikhail Prokhorov said he was looking to acquire distressed companies and was studying nine property projects worldwide, including a big elite resort development in South-east Asia.

'Many (Russian) developers will collapse because of rising project costs and worsening access to capital markets. It will become possible to buy some firms,' he said, adding that firms with projects of over 500,000 square metres were most at risk.

Moscow has become the world's second-most expensive city after London, based on the price of a square metre, and many analysts say the rise could continue because the market depends little on mortgages and is driven by cash-rich buyers as the country enjoys record revenues from oil, gas and metals exports.

According to Reuters calculations, Mr Prokhorov is estimated to have around US$10 billion in cash after selling some companies following a split of assets with former business partner Vladimir Potanin.

Mr Prokhorov said he would also invest in elite property around the world. Lack of space and liquid assets are making investment difficult in Europe and more feasible in Asia.

'If you make elite property your only business, then you can get trapped because it is illiquid. But if it is a small division, in the area of US$1.5 billion, then it is OK and is also very convenient as collateral,' said Mr Prokhorov, estimated to be worth US$22.6 billion by US Forbes magazine.

'As part of diversification and to hedge risks I want to develop elite property projects. It will be a separate company,' said Mr Prokhorov, who is already a large shareholder in property developer Open Investments.

'One of the projects will be in South-east Asia. We are looking at a total of nine projects,' he added. -- Reuters