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. Last Updated: 07/27/2016

Morgan Stanley Purchases Stake in RBI

ST. PETERSBURG -- Morgan Stanley Real Estate announced at a news conference Wednesday that it had acquired a 24.99 percent stake in the RBI construction holding.

The companies hope that combining resources will enable them to develop ambitious large-scale regional projects, increasing the value of the holding several times over.

"A year ago we launched a joint venture with Deutsche Bank. At that time, we decided to move on and increase the scale of our operations. We realized that we needed a partner inside the company, a shareholder that will back our mixed-use projects," said Eduard Tiktinsky, general director of RBI Holdings, at the news conference.

"I saw Morgan Stanley as a partner that does not merely give us money and then look for a return, but that is ready to take part in board meetings and, with its contacts and expertise, help us to execute our projects," Tiktinsky said.

RBI has already completed 39 buildings of various classes totaling over 530,000 square meters. Projects occupying a further 418,000 square meters are at the design or construction stage.

"We do not pretend to know the local market. But we are very positive about the Russian real estate market in general," said Glen Aaronson, managing director of Morgan Stanley Real Estate.

RBI is attractive because of its "vision to become an outstanding player in the Russian real estate market," said Emmanuel Blouin, executive director at Morgan Stanley.

More specifically, in the next five years, RBI plans to increase its own value to $5 billion, Tiktinsky said.

"Typically, acquiring a stake is only the first step. If we need additional capital injections, then that is something we will consider. We will share our expertise in specific projects. But we will also rely on the skills of our partner," Blouin said.

Neither company indicated the scale of the deal, but Igor Luchkov, head of the analytical department at Becar Realty Group, estimated RBI to be worth around $500 million.

"Obviously, this deal provides RBI with an additional source of funding. RBI actively uses the alternative finance market. It uses bank loans, internal funds, and the resources of Deutsche Bank," Luchkov said.

Vladislav Isayev, an analyst at FINAM investment holding, valued RBI even higher, at between $1.7 billion and $2 billion.

Morgan Stanley's acquisition will not give it control over the company, but it does imply an obligation to make additional investments, Isayev said.

"Thus, the price of the stake is only likely to be between $100 million and $250 million," Isayev said.

Morgan Stanley probably expects returns of 20 percent to 25 percent from their Russian investments, he said.

"In Western countries the development business is slowing down, so Russian development companies are very attractive to foreign investors," Isayev said. "Taking into account the firm's cooperation with such financial giants as Deutsche Bank and Morgan Stanley, RBI's plans look quite realistic."

Tiktinsky indicated that the tie-up with Morgan Stanley could make formerly problematic projects more feasible, such as the relocation of industrial enterprises and the redevelopment of large-scale sites.

He also noted, however, that high land prices in the city could drastically affect the profit margins of urban projects.

"Today, yields in most countries are lower," Aaronson said. But he added that Morgan Stanley would be interested in high-quality projects no matter what their profitability, be it five percent or 15 percent.