Oligarch Fridman pulls out of management of Ireland’s Russia assets

Oligarch Fridman pulls out of management of Ireland’s Russia assets
St Patrick's Day crowds on Moscow's Old Arbat Street in 2012.
By Jason Corcoran in Moscow November 10, 2016

The Alfa A1 unit of Russian oligarch Mikhail Fridman has withdrawn from a joint venture managing a property portfolio in Russia and Ukraine on behalf of the Irish government.

Alfa A1, the special situations and recovery vehicle of Fridman’s Alfa conglomerate, told bne IntelliNews it had exited a partnership with the Irish government. The portfolio of office blocks, shopping malls and warehouses, which was once valued at €500mn, is now being managed by on the ground by an international player.  

“We still have some obligations to finalise bankruptcy procedures in the old companies but IBRC holds and manages the assets,” an Alfa A1 spokesperson told bne IntelliNews. IBRC, the Irish state agency partnering with the Russian group, declined to comment.

The Irish government started a joint venture in 2013 with A1 to recoup real estate assets in Russia and Ukraine accumulated by Sean Quinn, once Ireland’s richest man. Philip McDonagh, Ireland’s ambassador to Russia at the time, said recovery of the assets is of “paramount importance to Ireland.”

Under the original deal, A1 was to get 30% from the sale of any assets which were recovered. The joint venture was revised in July 2015 and A1 sold its stake to the Irish government but was to continue to earn future rental income and a payout of 20% from the sale of assets.

However, A1 is believed to have sold only one asset, a DIY hypermarket in Yekaterinburg, as the Russian economy tumbled in the wake of sanctions and a collapse in energy prices.

Commercial real estate collapse

Demand for commercial real estate has largely collapsed in the Russian regions, where many of the Quinn assets are located.

A1 attempted to sell Q-Park, a vast logistics parks in Kazan once valued at €50mn, at auction twice last year but withdrew it from sale after failing to attract a single bid.

Russian electronics giant Eldorado is expected to move out of Q-Park once it completes a deal announced this month to acquire its own 35,000 square metre logistic centre in the same city. The company has been the largest tenant in Q-Park since 2011, occupying 27,000 square metres in the 82,000 square metre development. A report last month by property broker Cushman & Wakefield said half of the ‘Class A’ warehouses in Kazan are empty.

“Many of these warehouses were built in expectation that a flood of foreign and domestic investors would expand but that has died,” Tom Adshead, chief operating officer at Macro Advisory in Moscow, told bne IntelliNews. “Consumer confidence and consumer demand in Russia is still weak and bad debt is growing despite signs the two-year recession may be coming to an end.”

The Kutuzoff Tower, a 20-storey office block located just off Moscow’s Kutuzovsky Avenue, is doing better than most of the other Quinn assets. The building, which was once worth €140mn, houses Coca-Cola and Dunlop and is about 80% full, according to employees who work there.

However, leases were priced in dollars and some tenants left or had to renegotiate with A1 after the ruble collapsed.

One hedge fund manager who moved out a few months ago said his firm had lost their deposit. “We were paying $800 a square metre and we had 150 square metres,” the senior executive told bne IntelliNews. “We lost our deposit, which we had with Quinn’s company, but we have since found better offices in Moscow city.”

The rent roll from Quinn’s overseas assets is believed to a fraction of the €35mn IBRC said they earned in 2012.

The Univermag shopping center in the Ukrainian capital of Kyiv was acquired for €60mn A large section of the mall was shut during this year for refurbishment after its cinema was closed. Detskaya Planeta, a children’s store, has recently opened in the same space.

Quinn, who was sent to jail for nine weeks in 2012 for contempt of court, said his family lost €3.2bn from 2007 to 2008 as the value of its investment slumped amid the financial crisis. Kieran Wallace, a special liquidator for the IBRC, told the Commercial Court last year they had to overcome “dishonest and fraudulent activity" to secure control over major assets. The Quinn family have denied these allegations.

A1 had hoped to use the deal to parlay into other arrangements other sovereigns with exposure to Russia.

However, Fridman has now moved to London to manage his growing overseas telecoms, energy and technology portfolio and appears to be much less interested in his Russian assets.