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. Last Updated: 07/27/2016

Brunswick Ready to Roll With $500M

From real estate to railroad cars and points in between, a newly formed holding company said Wednesday it will invest between $400 million and $500 million here over the next five years.

"We are here to do business through joint ventures," Christopher Mackenzie, Brunswick Capital's chairman and chief executive, said in an interview.

"The common theme among them will be Brunswick's name," said Mackenzie, the former head of the European division of GE Capital, which itself is the financial services arm of giant U.S. conglomerate General Electric.

Brunswick, which together with the mighty Union Bank of Switzerland already owns Brunswick UBS, one of Moscow's leading investment banks, said the investment capital would come in the form of debt and equity from private and institutional investors, both foreign and domestic.

The holding company was set up last month to break into the real estate, leasing and consumer finance industries via various ventures with local partners. Mackenzie said $100 million of the $400 million to $500 million total will be invested into class A office space in Moscow, with the rest spread equally between investment banking, leasing and consumer finance.

Of all Brunswick's planned investments, however, only one is in uncharted territory. While unprecedented growth in the stock, real estate and consumer markets has already attracted many of the world's biggest players, no one has yet targeted the railroad industry.

Mackenzie said his company intends to snap up some 1,200 railcars by the end of the year and a total of 10,000 by 2008 and then lease them to companies in the oil, aluminum and coal industries.

Although the size of Brunswick's nascent railroad business may not be big enough to register on the Railways Ministry's radar, it represents a sea change in investor attitude toward the previously monopolized sector.

"We would not have done this a year ago," Mackenzie said. "But the timing is dictated by the fact that the market is opening up."

In May 2001, the government set in motion an ambitious overhaul of the Railways Ministry, essentially one of Russia's largest companies, to divide its commercial and regulatory functions. The government has already approved the creation of a new commercial entity called the Russian Railways Co. that will have more than $50 billion in assets when it officially starts operating later this year.

The ministry, which will eventually be pooled with the Transportation Ministry, has already hired several investment banks to help lure investment into the industry ahead of deregulation.

Last year, private companies carried just 10 percent of all rail cargo and they currently own 150,000 cars.

Some major rail users, such as state-owned oil major Rosneft, work only with state-owned carriers, while others, such as LUKoil, own their own stock of cars.

Fearing state-owned railroads were running out of cars, LUKoil set up a transportation subsidiary in the early 1990s, but it now plans to sell it and outsource its rail operations, company spokesman Dmitry Dolgov said.

The railroad business is growing rapidly, but some 30 percent of the 800,000 railcars currently in operation are considered outdated. Brunswick estimates that this will result in demand for new cars over the next few years hitting between $2 billion and $4 billion.

Prices for new cars vary, with flatbeds going for about $17,000, tank cars fetching $27,000, and state-of-the-art refrigerated cars costing up to $40,000.

The cake is so large that the government can hardly afford to foot the bill, so there is enough breathing space for new entrants, Mackenzie said.

The Railways Ministry will put 37 billion rubles ($1.2 billion) into railroad car and locomotive purchases this year, out of which almost a third -- 10 billion rubles -- will be spent to lease equipment from five private companies handpicked in a tender last month.

Interestingly, Mackenzie's former employer, General Electric, said earlier this year that it was interested in entering the sector, too, offering to commit $75 million to build a locomotive engine plant near St. Petersburg if it secured a contract with the Railways Ministry.

In the consumer financing industry, Brunswick is looking at funding consumer and dealer car purchases, and point-of-sale transactions via single-store plastic cards.

"As consumers are going to receive wage increases and values of homes go up, the confidence in borrowing will grow," Mackenzie said.

Brunswick officials refused to disclose the names of companies they are negotiating partnerships with, except that it is close to a deal with logistics specialist TransGroup on its railroad project.

If Mackenzie's past performance is any guide, Brunswick may be onto something big: During his five years as president of GE Capital Europe, the company's profits went from $50 million to $850 million and revenues rocketed from $1 billion to $5 billion.

Its first project on Russian soil was privatization voucher trading, which gradually transformed into a brokerage business and finally a well-rounded investment banking franchise.

Prior to joining Brunswick, which is owned by a multinational group of former and current managers, Mackenzie ran Trizec Properties, one of the world's largest publicly traded real estate companies with $7 billion in assets and $1 billion in revenues.