MOSCOW, Sept 19 (Reuters) - Russian real estate firms are freezing new projects as funding dries up and face possible cuts to their credit ratings, in the first signs that what many call the country's property bubble is about to burst.
Russia's fifth-richest man, metals magnate Mikhail Prokhorov, who has been predicting a property crisis since the summer, said he was poised to buy struggling companies.
'You will find out very soon,' he said on Friday, when asked about when he would make his first purchase.
He was speaking on the sidelines of an investment forum in Sochi, a Black Sea resort, which will host 2014 Winter Olympic Games. Property prices there have soared 1,000 percent in the past year.
Developers face difficulties in raising money for new projects as local and foreign capital markets are virtually shut, following turmoil in Russian financial markets.
On Friday, Fitch Ratings said it could cut the rating of one of Russia's largest developers, residential specialist PIK Group <PIKK.MM>, by more than one notch should it struggle to raise new funds to repay its short-term debt or should property prices fall.
Earlier this week, another major developer Mirax Group, which specialises in commercial property, said it would only seek new projects when the markets stabilise and would focus on existing developments.
Smaller developer Sistema-Hals said it was looking to raise $500 million by selling stakes in its projects to new investors to help repay debt.
Russian developers did a flurry of stock-market listings and borrowed aggressively in Russia and abroad to add millions of square meters to their projects, as the sector offered some of the best returns.
In contrast with the stock market, which halved in value since May due to global financial problems, a fall in oil prices and Moscow's tensions with the West, property prices have risen.
'Property prices in Moscow are beyond ridiculous. Only a Wall Street guy can afford an apartment in Moscow,' said Ron Smith, the head of research at Alfa Bank.
PRICES POISED TO DROP
Average residential property prices in Moscow have gone up to $6,000 per square metre from around $4,500 at the beginning of the year and around $500-1,000 at the beginning of the decade. That makes Moscow the second most expensive city after London.
Research agency IRN predicts a 20-30 percent decline in overheated Moscow property prices in the next six to 12 months.
Fitch has been warning about Russian developers since spring this year, but it and some other analysts say the number of casualties should be limited.
'I don't see a major crisis hitting big developers in the short-term. They will simply have to switch priorities from expansion to development of existing projects,' said Renaissance Capital analyst Alexei Yazykov.
The head of PIK, Kirill Pisarev, told Reuters this month there would be no bankruptcies among big Russian developers because of their low leverage compared with Western peers, who often finance whole projects solely with debt.
PIK has a debt-to-earnings before interest, taxation, depreciation and amortization (EBITDA) ratio of below one, and equity accounts for 50-70 percent of its project financing. Fitch's warning was about PIK's ability to repay short-term debt.
(Reporting by Dmitry Zhdannikov; Editing by Erica Billingham) Keywords: RUSSIA DEVELOPERS/ tf.TFN-Europe_newsdesk@thomson.com ra COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
Russia's fifth-richest man, metals magnate Mikhail Prokhorov, who has been predicting a property crisis since the summer, said he was poised to buy struggling companies.
'You will find out very soon,' he said on Friday, when asked about when he would make his first purchase.
He was speaking on the sidelines of an investment forum in Sochi, a Black Sea resort, which will host 2014 Winter Olympic Games. Property prices there have soared 1,000 percent in the past year.
Developers face difficulties in raising money for new projects as local and foreign capital markets are virtually shut, following turmoil in Russian financial markets.
On Friday, Fitch Ratings said it could cut the rating of one of Russia's largest developers, residential specialist PIK Group <PIKK.MM>, by more than one notch should it struggle to raise new funds to repay its short-term debt or should property prices fall.
Earlier this week, another major developer Mirax Group, which specialises in commercial property, said it would only seek new projects when the markets stabilise and would focus on existing developments.
Smaller developer Sistema-Hals said it was looking to raise $500 million by selling stakes in its projects to new investors to help repay debt.
Russian developers did a flurry of stock-market listings and borrowed aggressively in Russia and abroad to add millions of square meters to their projects, as the sector offered some of the best returns.
In contrast with the stock market, which halved in value since May due to global financial problems, a fall in oil prices and Moscow's tensions with the West, property prices have risen.
'Property prices in Moscow are beyond ridiculous. Only a Wall Street guy can afford an apartment in Moscow,' said Ron Smith, the head of research at Alfa Bank.
PRICES POISED TO DROP
Average residential property prices in Moscow have gone up to $6,000 per square metre from around $4,500 at the beginning of the year and around $500-1,000 at the beginning of the decade. That makes Moscow the second most expensive city after London.
Research agency IRN predicts a 20-30 percent decline in overheated Moscow property prices in the next six to 12 months.
Fitch has been warning about Russian developers since spring this year, but it and some other analysts say the number of casualties should be limited.
'I don't see a major crisis hitting big developers in the short-term. They will simply have to switch priorities from expansion to development of existing projects,' said Renaissance Capital analyst Alexei Yazykov.
The head of PIK, Kirill Pisarev, told Reuters this month there would be no bankruptcies among big Russian developers because of their low leverage compared with Western peers, who often finance whole projects solely with debt.
PIK has a debt-to-earnings before interest, taxation, depreciation and amortization (EBITDA) ratio of below one, and equity accounts for 50-70 percent of its project financing. Fitch's warning was about PIK's ability to repay short-term debt.
(Reporting by Dmitry Zhdannikov; Editing by Erica Billingham) Keywords: RUSSIA DEVELOPERS/ tf.TFN-Europe_newsdesk@thomson.com ra COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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