Sistema-Hals readies plan to deal with credit crisis

Russian real estate firm Sistema-Hals has denied that it could face difficulty in financing its short-term debt. The company was responding to recent reports suggesting that Russian real estate developers are likely to be among the worst hit by the deteriorating financing environment.

Fitch Ratings issued a report in early October warning that the preparations by the management of some Russian development companies have been inadequate to deal with the current condition of the financing market. 'There is a fundamental mismatch of assets (long-term) and liabilities (short-term) some commercial property-focused developers.'

'This is because of a large share of short-term debt in their liquidity profiles, their often significant operational cash outflows, limited cash-on-balance sheet and a virtual absence of meaningful committed undrawn facility headroom,' the rating agency said

But London-listed Sistema-Hals indicated on Thursday that its immediate priority is not servicing debt but financing its construction programme. The company currently has $1.2 bn of debt of which only around 20% is short-term debt. About $20 mln of which falls due for repayment before the end of 2008. 'Repayment terms for most (c. USD700 million) of the long-term debt extends to 2012,' Sistema-Hals said.

The company is working on an action plan and budget for 2009 in response to the current market conditions. Sistema-Hals said it can exploit its diversified and high-quality portfolio of residential and commercial real estate projects as an alternative source of financing for its construction programme. Already it is looking into selling assets that produce less than a 20% return on investment.

Another measure could be partnerships for its most capital-intensive projects in case of further deterioration of the market situation, the statement said. The final strategy is due to be announced in November following its approval by the board of directors.

Sergei Shmakov, president of Sistema-Hals, commented: 'The global liquidity crisis which is affecting markets around the world, including the Russian real estate sector, has necessitated a prudent review of the priorities in our investment programme.'

'Taking a pragmatic approach, we are analysing different scenarios of further evolution of the market conditions and developing appropriate action plans, based on of the Company’s competitive advantages - such as scale of business, diversified portfolio of high quality projects, alternative sources of financing and experience of the new management team. Given the attractive, long term fundamentals of the Russian real estate market, and Sistema-Hals’ key strengths, we believe that the company is well placed to ride out current market turbulence and continue its development in a medium term perspective.'

Sistema-Hals was established in 1994 and has completed more than 30 projects with a total area of more than 300,000 m². Cushman & Wakefield valued Sistema-Hals' interest in the facilities and projects within its portfolio at $3,8 bn at end-July this year.