Oleg Deripaska on Monday delayed a major share buyback of Strabag as the Austrian construction firm faces mounting problems with subcontractors and Moscow city authorities.
Rasparia, an investment vehicle that is part of Deripaska’s Basic Element, has extended its call option on Strabag shares to Oct. 15, 2010. In 2007, Deripaska acquired 25 percent of Strabag, but was forced to sell his stake in April to other key investors.
Deripaska held on to a single share of Strabag, with the option to buy back the full 28.5 million shares on Dec. 18, and the possibility to extend this deadline to Oct. 15, 2010, which he has now exercised.
He has until Dec. 18 to pay an extension premium of 45.8 million euros ($68.5 million). The option price will then rise to 19.25 euros per share from 18 euros, Strabag said.
Strabag is eager to win back Deripaska as a shareholder so that it can continue its partnership in Russia with Transstroi, the billionaire’s construction firm.
There are many advantages to having a local partner in the form of Oleg Deripaska, said Mikhail Ganelin, a construction analyst with Troika Dialog. “Foreign companies find it difficult to win contracts in Russia. The problem is not so much corruption, but rather a difficulty in understanding local procedures. Russian firms have the advantage when it comes to tenders as they understand the processes better,” Ganelin said.
Strabag and Transstroi, which is wholly owned by Deripaska, began cooperating on a consultative basis when Deripaska acquired his stake in Strabag, but the collaboration tapered off upon his departure as a major shareholder, said a source in Transstroi, who asked not to be identified, as the company is not officially commenting on the Strabag deal.
The partnership is likely to resume if Deripaska reacquires his stake, the source said. She added that foreign builders operate at a disadvantage in Russia because they are “less flexible,” while “Russian companies are prepared to lower the tender price as they better understand the process and the clients.”
Strabag has encountered numerous problems on some of its high-profile Moscow developments.
On Monday, Moscow city authorities accused the company of inflating estimates for reconstruction work being carried out on Hotel Moskva.
The head of the city property department, Vladimir Silkin, said authorities intended to carry out a full review of spending on the project. “In our view, the sum quoted by Strabag is inflated. If, after the inquiry is completed, our suspicions are confirmed, we will take measures to defend the interests of the city,” Silkin said in a statement.
Work on the hotel began in 2004 and the completion date has been pushed back repeatedly. It is now expected to open in the first quarter of 2011.
Strabag’s Russian CEO Alexander Ortenberg defended the company’s calculations, saying, “All our expenses on the reconstruction of the Hotel Moskva can be accounted for.”
Earlier this month, Moscow’s construction watchdog filed an application to revoke Strabag’s license to operate and put it on a federal blacklist following a fatal accident on the construction site of Vivaldi Plaza, near Paveletsky Station. A subcontractor working for Strabag was implicated in the incident, but the head of the construction watchdog, Anatoly Zaiko maintained that Strabag itself was at fault.
In October, Interior Ministry investigators launched a criminal case against “unknown managers” connected to Strabag, accusing them of not paying 108 million rubles of taxes from 2004 to 2006.
On Oct. 6, Strabag’s four main Moscow offices were raided by tax authorities accompanied by special forces units, who seized documents pertaining to the Hotel Moskva and Blizhnyaya Dacha projects. Strabag said its subcontractors were suspected of tax irregularities and it was cooperating with authorities in the investigation.
Strabag, Austria’s largest construction company, has operated in Russia since 1991 and currently holds a construction portfolio in Russia valued at 1.2 billion euros.
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