Pisarev Confident Big Players Are Safe

ReutersPisarev speaking during a recent interview. He says the real estate market is facing an "autumn of uncertainty."
PIK Group does not expect major domestic developers to fall victim to the global credit crisis because of lower debt levels than Western rivals.

"I do not think any of the big companies will go bankrupt because they are underleveraged," Kirill Pisarev, chief executive of the country's largest real estate company, said in a recent interview.

"At the same time, this is the main negative factor, but we are feeling that it helps us in the end because our debt levels are very good," said Pisarev, who is also one of the company's billionaire co-owners.

PIK, founded in 1994, has become the country's biggest developer by selling residential properties to the emerging middle class, which is eager to snap them up as the economy grows for a 10th straight year.

Pisarev said major developers in Russia used much of their own funds for investment and thus had lower debt levels than many real estate companies abroad, which are highly leveraged.

PIK has a debt-to-earnings before interest, taxation, depreciation and amortization ratio of below one, and equity accounts for 50 to 70 percent of its project financing.

"In Russia, the situation is different because the debt market is underdeveloped and most assets are acquired with own funds, so we are less dependent on debt financing," he said.

But sky-high real estate prices and higher borrowing costs for Russian companies have raised concerns that a liquidity crunch could push some domestic developers to fail.

"The problem of liquidity has mostly hit banks and the real estate sector -- we saw that in America, we saw that in Europe and lately we have seen that in Russia," Pisarev said.

"Despite the fact that the Russian fundamentals are rather strong, the financial crisis has come to Russia, and the question of liquidity is the No. 1 question."

Pisarev said PIK was not having problems finding funds, although debt costs had risen. "The problem is not getting the money, the question is that debts are more expensive than usual."

He said the current turbulence on the market offered a way for PIK to boost its market share, though he added that there was uncertainty ahead for the sector as a whole.

"A crisis is a moment of certain opportunity ... so I think we have a serious chance to increase our share of the market," he said.

"Apparently, we will face an uneasy autumn, the autumn of uncertainty," Pisarev said. "But we look with a lot of optimism at 2009 and 2010."

"Construction volumes will fall this year because of the financial crisis, and taking into account that demand remains quite strong, it will support price growth rates at current levels," he said.

PIK raised $1.8 billion in an IPO in June 2007, becoming the country's top developer with a market value of $12.3 billion.

Since the IPO, PIK's stock has lost around one-quarter of its value. Pisarev said PIK, which currently has a market capitalization of $8.9 billion, was "extremely cheap."

The company had revenue of $2.7 billion in 2007, EBITDA of $939 million and net profit of $700 million. The combined market value of its properties was $12.3 billion as of Jan. 1, 2008.