PIK Group, Inteko Partner Up on Housing Project

Inteko will receive a stake in PIK Group's business-class housing development on Michurinsky Prospekt, a project that the developer was unable to sell to VTB last year because of the bank's concerns over the builder's right to rent the land.

PIK Group, whose main shareholder is billionaire Suleiman Kerimov, has notified its partners that it gave half of its Michurinsky project to Yelena Baturina's Inteko, several builders working on the project and a source close to PIK told Vedomosti.

Inteko plans to accept PIK's offer to acquire 50 percent of the company that owns the rights to develop the project, and a statement of intent has been signed, Inteko spokesman Gennady Terebkov said, adding that the builder would join as the project's managing company.

Spokespeople for PIK declined comment.

Michurinsky is a 360,000-square-meter, business-class residential complex in southwestern Moscow. The project began in 2003, with Moscow's department for investment programs serving as the investor. It was later reformed to split the work among several builders: Glavstroi, PIK, Mospromstroi and state enterprise Upravleniye Eksperimentalnoi Zastroiki, or UEZ.

Glavstroi is building 200,000 square meters, some of which is already completed, while Mospromstroi has finished its 44,000 square meters at the project. PIK has laid the foundations for its 75,000 square meters. UEZ is building the remaining space and is also just starting.

PIK tried to sell the project last fall to VTB, which considered taking ownership to help settle a 2.7 billion ruble ($88.6 million) loan. At the time, the state bank was also in talks with Glavstroi and planned to consolidate the developers' Michurinsky stakes.

The deal fell through, however. A source close to PIK's management said the bank refused to take the stake because of problems with the land's registration. The rental agreement expires in 2010, and PIK can only extend its rights at auction, the source said.

If a plot of land has already been assigned but the builder did not have time to develop it, then under the law, the rights should be auctioned again, and the original winner is not guaranteed to win a second time, said Vitaly Mozharovsky, a partner at Goltsblat BLP.

The bank and the developer value the project's risk differently, he said. VTB's lawyers may have taken a conservative approach, whereas Inteko has the lobbying power to settle any complications over the land rights, Mozharovsky suggested.

Maria Litinetskaya, head of Miel-Novostroiki, said she thought that Inteko might have joined the project in exchange for a promise to settle the property issue. A project for 75,000 square meters could be worth $60 million, she said, although the land issues could have meant a discount of up to 50 percent.

Investments in construction are likely to be about $110 million for the project, Litinetskaya said.

According to PIK's IPO prospectus, the company rents 16.4 hectares in Michurinsky. But Litinetskaya said that as little as 6 hectares would be needed to build 75,000 square meters of housing — possibly leaving the remaining 10 hectares for some other project.