Russia eyes Balkans for investments

April 25, 2012 by Ioannis Michaletos

Greek, Cypriot, Serbian and Croatian business owners are in talks with Russian counterparts on the subject of large-scale investments in housing, leisure and entertainment complexes in various locations.
President Konstantinos Stephanopoulos (left) of the Hellenic Republic officially welcomes President Putin. (December 6, 2001)

Russian corporations over the past year, and especially as the debt and economic crisis in Europe seems to be getting out of control, are increasing their initiatives to gain business assets all over the Continent with a particular focus in Southeastern Europe and Greece. Due to the crisis the depreciation of value creates bargain opportunities for the Russians that have excess liquidity and seek a way to invest their capital.

At the same time the changing international climate that favors the creation of globally-linked webs of business influence is another motive for Russian companies to emerge as international champions in light of the country’s entrance into the World Trade Organization. Lastly, the upheaval in Syria, North Africa and the delicate situation in Turkey & Iran, as well as, the real danger of an eventual disintegration of the European Union, likely prompts Moscow to back-up Russian companies interest into the Southeastern part of Europe, as a preferential entry point to the EU and in the wider region.

Banks

The Russian VTB bank has assets of over 200 billion Euros and is heavily involved in providing large loans to mostly Russian industrial institutions. In Southeastern Europe it maintains presence only in Cyprus through its subsidiary Russian Commercial Bank.

Presently VTB is in talks to inject 1 billion Euros into the Greek-Cypriot Marfin Popular bank, which maintains presence also to Romania, Serbia and Ukraine. Due to the “haircut” of Greek bonds Marfin is in dire straits for a significant share increase and if the deal goes on VTB will become the managing partner with some 45% of shares.

Marfin caters the needs of locally based companies and has a good reputation in handling private banking demands, as well as, providing considerable credit lines to commercial clients.

Moreover, the already established in Athens Russian bank SISC CB KEDR, has announced in March 2012 it immediate plan of expanding both its branch network and its credit line capabilities for the ailing Greek market. In parallel it is widely rumored that it will ultimately use Greece as a spring board to expand in neighboring Bulgaria, at a period where the regional banking system due to the Greek debt crisis is heavily exposed and amazingly depreciated. It is of interest to note that the largest Balkan bank, the National Bank of Greece, whose real estate assets with today’s commercial values are in excess of 15 billion Euros and its net position in its Turkish subsidiary Finansbank, is more than 5 billion Euros; is worth merely 1.6 billion Euros in the stock market. Similar analogies are to be found for the other banks and financial institutions.

Russian tycoons banking plans

Rybolovlev is a Russian tycoon, 93rd in global Forbes list with 8 billion USD wealth, who in September 2010, acquired through an offshore fund registered in the British Virgin Island (Odella Resources), almost 10% of Bank of Cyprus making him the largest individual shareholder of the largest bank on the island, which also has strong presence in Greece, UK, Guernsey, Romania, Russia, and Ukraine. Since January 2012 he has paid several low-profile visits to Athens and met with several important shareholders of local banks in order to discuss opportunities for him to buy strategic share percentages in all major Greek private banks that suffered great losses due to the “haircut” of the Greek bonds and are desperately seeking for funds. Some of those such as Alpha Bank, Eurobank and Piraeus Bank, maintain very important presence in all Balkan countries and it is rumored that Rybolovlev is also negotiating the investment in these subsidiaries through a consortium with him along with other Russian banks. Furthermore another Russian business tycoon, Alexander Nesis has secured the buy of 5% of Piraeus bank in 2011 through his ICT fund and he is also frequently negotiating the increase of his share in the bank aiming to create a banking network in the Balkans.

Energy investments and privatization

The Russian Gazprom recently established a rapprochement with Bulgaria that calls for the beginning of the construction of the South Stream project within the next year. Moreover both sides are entrapped for years in talks regarding the 5 billion USD investments for Belene thermonuclear power station that the Russian Company Atomstroyexport is vying for contract. In Serbia, where the largest energy company NIS was bought a few years ago, and in Croatia, along with Slovenia the North axis of the South Stream has been agreed to pass through along with natural gas depots along the route. In Greece, Gazprom expressed its formal interest of participating in the privatization of the DEPA & DESFA natural gas companies that are to be sold by the end of 2012, with a price tag estimated at 2 billion Euros. In another privatization development, that of ELPE Greek oil group with operations in most of the Balkans, Gazprom Neft expressed its interest of buying 35% of the disposable shares. In parallel Rosneft increased its deliveries of Ural type oil to the Greek market, after the effective Iranian hydrocarbon embargo and it is estimated that 30-40% of the consumption of oil in Greece will be covered from that source in the coming months. In Bulgaria, and Serbia Lukoil and Gazprom Neft respectively control the vast majority of oil imports already. In Romania as well, Russian interest is also significant. According to a late 2011 report by the Fox Business News “Russian oil giant Lukoil Holdings will invest around 400 million USD in hydrocarbon prospecting at Romania’s Black Sea platform, with another 1.5 billion USD available for further works if discoveries are made”. Lastly in Greece 65% of its natural gas imports are being met by Gazprom, in Bulgaria almost 95%, in Romania 30%, in Slovenia 55%, in Croatia 40%, in Serbia 95%, in FYROM 100% and in Turkey 65%. The projections by the European Commission’s energy directory, the IEA and most energy analysts is that the use of gas globally and in Southeastern Europe will further increase in the coming decades, and in that respect Gazprom is betting on a multibillion Dollars investment such as South Stream in order to achieve a hefty return on capital for the next two generations or so.

Real estate & Tourism

Over the past 15 years there has been a steady increase in the interest of Russian holiday makers to buy a second property in coastal areas of Greece, Bulgaria and Montenegro. Nowadays interest of organized and systematic nature is being revealed that calls for investment en mass in that sector. In early 2011 the Greek -Russian chamber of commerce and the Russian real estate federation signed a protocol of cooperation, whereby the former will assist the later in pursuing business opportunities in Greece.

Several companies, such as “Leventi S.A”, “Ependytiki Kritis S.A”, “Chantzis & SIA O.E”, Nea Ktimatiki S.A”, “Domus Ars S.A” that are developing luxurious summer resorts and housing complexes in Central Greece, Crete, Khalkidhiki, Island of Tzia, Pilio and Loutraki, respectively are actively engaged with major Russian companies to make joint investments.

Since late 2011, around 20 representatives of Russian real estate corporations have visited Greece to explore opportunities, and some have secured deals, such as the buy of a Corfu based hotel, several units in Khalkidhiki and dozens of highly prized villas in the island of Crete. Since late 90′s the Russian tourist market has increased considerably and Greece, along with Turkey, Cyprus, Bulgaria and Montenegro are becoming hot spots for incoming Russian tourism. Moreover the Municipality of Belgrade is actively encouraging the marketing of the city as destinations targeting the high-disposable income Russian tourists.

Tourism from Russia, as regarding to Greece has as a positive secondary effect the large number of fur coat exports from the city of Kastoria to the CIS market, worth more than 300 million Euros a year and most probably the only industrial sector in Greece that hasn’t felt the crisis due to that factor.

In 2011 600,000 Russian tourists ventured to Greece and for 2012 850,000 are estimated to arrive. In Bulgaria 470,000 came from Russia with 550,000 expected for this year. In Montenegro entire villages and more than 40% of property in Montenegro are owned by Russians, according to an investigation by Novaya Gazeta, with Russians constituting the largest number of incoming tourists except neighboring Serbians. For 2012 it is estimated that 300,000 Russians will spent their vacations in that country of the Adriatic coast. In Turkey there is a massive inflow of Russian tourists, with the local tourist board estimating that more than 4 million will visit the country in 2012. The Southeastern European tourism authorities seem to be eagerly awaiting the increasing arrivals of Russian citizens, since they spent on their average trip more than1,500 USD per head , which is almost double than that of an average UK, Dutch or German tourist.

Lastly, Greek, Cypriot, Serbian and Croatian business owners are in talks with Russian counterparts in order to proceed in large-scale investments in housing, leisure and entertainment complexes in various locations. The negotiations take place mostly in Cyprus, where Russian tycoons, banks and funds have deposited from 20 up to 100 billion USD according to different economic reports at times.

In general the global economic crisis in 2008 that spiraled into an EU crisis via the Greek debt issue in 2010 seems to be motivating Russian interest into tapping depreciated resources in the Southeastern part of Europe. Considerable interest is said to be shown also by Chinese companies for Serbia, Greece and Bulgaria and Indian corporations also examining gaining a further foothold in the region, with interest in food processing industries and transportation. Future will tell if the Balkans becomes the entry point for the massive introduction of BRIC funds into the EU, a move which is contemplated by the robust growth of industrial exports by the leader of the EU, Germany, to the BRIC markets and especially those of Russia and China.

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Ioannis Michaletos
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