Sibir unveils $340m purchase to rescue key shareholder

Russian oil company Sibir Energy has unveiled a $340 mln (EUR 265 mln) programme to buy hotels and distressed land projects from Chalva Tchigirinski, its key shareholder and a Russian billionaire who has seen the value of his investments plummet in the wake of the credit crisis. Shares in Sibir, which is listed on the London stock exchange, fell 40% on the announcement that it was buying property from Tchigirinski, which many Russian investors described as a huge 'corporate scandal'.

Sibir announced in October that it was buying the 106-room Sovietsky Hotel and the New Sovietskaya project in Moscow from Tchigirinski for a total of $157 mln, paying $115 mln in advance. This week the company said it is planning to acquire a further $340 mln worth of real estate from Tchigirinski in a bid to avoid the 'global financial crisis and drop in share values having a domino effect on Tchigirinski's financial position.'

'All of his commercial financial facilities were due for repayment or were subject to material reduction,' the company said in a statement. 'As the preservation of the company's shareholder structure was paramount, the board of Sibir has concluded that the company must take over the bulk of Mr Tchigirinski's remaining real estate business,' it added.

Sibir plans to pay $127 mln in cash for the properties and assume $213 mln in debt from Tchigirinski. The portfolio comprises a 50% stake in the Russia Tower, the Norman Foster-designed skyscraper development that was halted last month due to lack of financing. The 612-metre tower, which would be the highest scheme in Europe, has a gross buildable area of 476,000 m² and is located in Moscow City, the new financial district of Moscow. Sibir said it intends to suspend further development of the project until market conditions improve. It added that the transaction will amount to $106 mln, including costs. The deal is conditional on approval from Tchigirinski's lenders as well as the company's shareholders.

Chief executive Henry Cameron said: 'Difficult times call for uncomfortable decisions to be made. Doing business in Russia has never been for the faint-hearted and sometimes requires difficult calls in the boardroom.' The deal represents the first real estate investment made by the oil group, which is 47%-owned by Tchigirinski, and his partner, Igor Keayev.

SIbir is also to acquire the Nikitsky Pereulok 5 office building, which is located within 200 metres of the Red Square and the Kremlin. The building, built in 1993, has a total area of approximately 20,093 m². The portfolio also includes the Mitino retail development site located in North Moscow; a 50% stake in the 194,000 m² New Holland mixed-use development in central St Petersburg; the Passageredevelopment project; the Irkutsk Tea Factory mixed-use development in the centre of Irkutsk, an industrial and logistics city in Siberia and the Klin Land Bank land-plots totalling approximately 118 ha of land on the outskirts of the town of Klin.

Sibir said it plans to transfer the assets to a newly formed real estate division of the company.