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. Last Updated: 07/27/2016

City to Mortgage Property for Loans




Strapped for cash to continue its own ambitious construction plans, City Hall is hoping to use the Manezh luxury mall and other glamorous city-owned properties as collateral for Western loans, Moscow's mayor said Wednesday.


The Manezh mall, a three-story underground complex right beside the Kremlin walls, could be used to back a $250 million loan, Moscow Mayor Yury Luzhkov told a meeting with managers from 50 British companies that was convened at the initiative of the Russian-British Chamber of Commerce.


The loan would be used to turn the Moskva Hotel next door to the Manezh into an international-standard five-star hotel, Luzhkov said.


He declined to name other municipal real estate that could be used as collateral for loans.


His first deputy mayor in charge of construction, Vladimir Resin, was similarly reticent at a separate news conference on Wednesday when he said that "the collateral is being prepared" to back a $500 million loan that Moscow is working toward for developing its housing mortgage scheme.


City Hall is planning to sign a deal "shortly" with a group of private U.S. investors for such a loan, after a letter of intent was signed in mid-February, Resin said.


The program is aimed at reviving the construction industry and will provide about 1.5 million Muscovites with apartments, he added.


Moscow's large portfolio of real estate holdings includes numerous high value properties. Coupled with the fact that the city of Moscow is one of the only government or private entities in Russia that has not defaulted on any of its obligations, the use of prime real estate as collateral is City Hall's only real hope of turning on the money tap again, analysts said.


"It will be difficult to sell off such collateral as real estate, but there is no other collateral that Moscow could offer now, considering its serious debt burden," said Alexei Zabotkin, an analyst at United Financial Group's.


Moscow has issued more than $1 billion worth of Eurobonds, maturing in either 2000 or 2001, as well as an unknown quantity of syndicated loans. The city has some $300 million of foreign debt maturing this year, officials said.


The key issues for potential creditors will be whether or not the collateral on offer is free of other ties and if they can make use of the property themselves in the worst scenario, Zabotkin said.


"It is clear that a financial institution does not need real estate. But if an investor is involved with, say, a Western supermarket chain, getting a good piece of real estate in Moscow downtown could be worthwhile."


The Manezh mall is certainly about as downtown as you can get. The Moscow City Government owns an 87 percent stake in Okhotny Ryad, the company that owns and runs the shopping complex.


City Hall invested about $420 million in the mall's construction, Interfax reported.