Guiding Lines: Inteko’s Phenomenon


Earlier news agencies reported that Inteko had undertaken a number of office projects across Russia and in Kazakhstan. Given the enormous size of construction planned, Inteko – hitherto a major developer of residential space in the capital – is clearly turning into a commercial property developer before the very eyes of other operators.

Moscow-based commercial developers were genuinely surprised if not shocked as the company announced its plans to launch several large-scale projects both in housing and commercial property sector, including construction of roads and junctions.

Inteko, long known in Russia as the leading housing developer, is set to build gigantic office complexes. Inteko has long nurtured plans of switching to commercial development.

Having risen from a small and obscure firm, led by an energetic businesswoman, spouse of Moscow Mayor Yelena Baturina, to a leading player on the building market in a short space of time, Inteko has implemented projects on the best sites across Moscow – at least 30 properties measuring a total of 5 million square meters. The company also secured a foothold in petrochemicals and farming sectors. In 2004 Inteko’s turnover stood at approximately $1 billion. The company became known outside Russia. Forbes has put Yelena Baturina’s wealth at $2.3 billion.

The rapid growth of a young company that enjoys a strong government backing is quite understandable. In Russia, such phenomena are possible mostly where executives maintain close ties with officials in local administrations.

The stronger those ties are and the higher is the ranking of those connections the more chances there are to succeed. Perhaps, the only firms in Moscow that may compare to Inteko in terms of building volumes and popularity these days are PIK Group, Sistema Hals, or ST Group.

Inteko’s sensational appearance in Cannes, as well as other moves undertaken by the company lately, leads to interesting conclusions. Some time ago Inteko sold its cement production facilities to Eurocement Group, and house construction enterprise DSK-3 to PIK Group.

Those deals could as well herald the beginning of an overhaul both within Inteko and the Moscow city hall. Where the administrative resource ends the market begins. After all, the year 2007 when the Russian president is to nominate a new candidate to the Moscow mayor post is not far off.

Thus, commercial real estate and office development in particular has become one of the new niches for Inteko. Several months ago the company announced its plans to build a 75,000-square-meter business center Moskva in the capital of Kazakhstan. The idea is similar to the cultural and business center Astana in Moscow under construction by the Kazakh Construction Company.

In Cannes, Inteko also presented its business park Setun Hills (570,000sqm) to be raised at the intersection of Minskaya and Starovolynskaya streets, estimated to be worth $700 million, and a hotel and office complex Aviapark on Khodynskoye Field ($600 million), providing 90,000sqm of offices, 40,000sqm of lodging facilities and 70,000sqm of residential space.

Both projects are to be launched in late 2006. Also, Inteko takes part in construction of the landmark Moskva City office park. Business parks designed by Inteko still have no analogs in the capital. By 2012 the company plans to spend some $2.2 billion in office and hotel construction.

Inteko is not the only housing developer to stake on office real estate. Capital Group, for example, was one of the first to do so. (The federal law on shared construction (No. 214) last year sowed fear and apprehension as many anticipated a slump in apartment housing investment.)

But that does not mean that housing construction majors will abandon residential development altogether and fully switch to office projects. Nevertheless, housing alone is a scarcely rewarding business, especially considering that the company is likely to lose the government support it used to enjoy before.

While Inteko is breaking into the office market it continues internal overhaul. Part of the funds raised through the sale of cement production facilities will be spent on acquisition of stakes in Gazprom and Sberbank. Practice shows that entrepreneurs whose business is fraught with high risks tend to invest in financial instruments.

Not long ago, Viktor Baturin, Yelena Baturina’s brother, was dismissed from the post of Inteko’s vice-president. Dismissals of top executives usually entail changes in style of operations of the entire company. It is quite probable that Interko’s CEO will soon reshuffle the entire upper management, replacing them with new successful executives, capable of moving the company onward in modern market conditions.

At times, powerful government support is an advantage developers enjoy only at the outset. Commercial and housing developers whose rise represents a phenomenon similar to that of Inteko are the above mentioned ST Group, Sistema Hals or PIK. Those hold the best sites in the city working on the most ambitious building projects.

The changes have begun within other large housing construction firms as well. PIK is about to enter international financial markets, either by launching an IPO or issuing bonds. Incumbent executives are to be replaced with independent directors. Earlier, DON-Stroi presented its plans to launch office construction.

The rumor has it that Oleg Deripaska, the new owner of Glavmosstroi, has launched a major staff reshuffle within the company. If other operators follow suit investments and manpower will flow into office development bringing about the long-awaited saturation in the class A and B sector, and consequently, a decrease in rentals, much to tenants’ joy.