SERBIA-$520 MILLION BANKRUPTCY AUCTION

UNCLAS BELGRADE 001514

SIPDIS

SIPDIS
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: ECON EINV SR
SUBJECT: SERBIA-$520 MILLION BANKRUPTCY AUCTION
HIGHLIGHTS INVESTOR INTEREST IN THE SERBIAN
MARKET

REF: BELGRADE 1396

SUMMARY
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1. On October 29 Verano Motors bought bankrupt
department store chain "Robne Kuce Beograd" for
$520 million in the fifth largest privatization
deal in Serbia. Verano's offer prevailed over
nine other bidders including two U.S. investment
firms and well-known Serbian business tycoons.
The purchase gives Verano 38 stores and
facilities located on prime real estate in
Serbia. END SUMMARY.

THE SEARS & ROEBUCK'S OF SERBIA SELLS FOR $520
MILLION
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2. On October 29, Econoff attended the hotly
contested public auction in which Verano Motors
bought department store chain "Robne Kuce
Beograd" (RKB) for $520 million, making it the
fifth largest privatization deal in Serbia's
history. Verano Motors, a Peugeot car
distributor, is finalizing financial backing from
Greek firm Marfin Investment Group. Verano out
bid nine other participants, including U.S. firms
Merrill Lynch and NCH Capital Partners. The
purchase gives Verano 38 stores and facilities
across Serbia and includes several properties in
Montenegro, totaling almost 240,000 square meters
of premium real estate. RKB stores are located
in city centers across Serbia - including in
Belgrade's pedestrian zone and fashion centers -
making them some of the most attractive real
estate in the country. Radomir Zivanic, owner of
Verano, announced his plans to invest an
additional $101 million into the chain to restore
RKB to its former glory.

The Auction Process
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3. The Privatization Agency offered RKB, once
the largest chain store in the former Yugoslavia
and third largest in Europe, at a starting price
of $200 million. The chain went into bankruptcy
in 2002 after suffering through the high
inflationary period of the mid-1990s with little
government help.


4. The lead up to the RKB auction was not as
smooth as it could have been. On November 1,
Econoff met with advisors to the Privatization
Agency (PA),Hugo Green and Wojtek Mlodziejewski.
According to Green and Mlodziejewski, the PA
provided RKB's financial and business data two
weeks late for investors' due diligence. Most of
the information was only available in the Serbian
language. In addition, gaining access to company
documents in the data center was time limited,
further hampering potential investors' ability to
analyze the value of the company. Only 10
bidders, out of the more than 40 who purchased
tender documents, posted the $58 million bond to
participate in the auction. Most bidders were
made up of partnerships between international and
domestic investors, including the usual cadre of
Serbian tycoons who hid behind company names
registered abroad.

THE MYSTERY BEHIND BIDDERS
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5. According to real estate consultant Vladimir
Mrvic, few details are known about the new owner
of RKB, Radomir Zivanic. Nicknamed 'The Boss,'
Zivanic is known as a street tough, no nonsense,
savvy tycoon who dabbles in car sales and real
estate. His life before opening his first
dealership is a mystery as are his dealings while
living in Greece 2000-2003. According to Mrvic,
Zivanic made his fortune during the Milosevic era
smuggling contraband. Today he is the sole
distributor of Peugeot cars in Serbia. Zivanic
entered the real estate business about six years
ago and now has several attractive properties


around Belgrade, including land downtown on which
he is building the Zira Shopping Mall.


6. Bidding entity names were intentionally
obscure and were not released prior to the
auction. It is still unknown who is really
behind many of the bidders. There was no doubt,
however, that many of Serbia's powerful tycoons
discreetly partnered with international and local
investors in an attempt to circumvent anti-trust
laws and tax obligations. A little digging
pulled up Delta Holdings giant Miroslov Miskovic
bidding via Balkans Real Estate. Miodrag Kostic
(who made his money in sugar) and Filip Zepter
(among the richest of Serbia's tycoons) partnered
under bidding entity Aida Asset Association and
Home Art and Sales Services. Still unaccounted
for, but believed to have participated, is Milan
Beko. (See Reftel for information on Serbian
tycoons.)

MORE THAN JUST A DEPARTMENT STORE
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7. Urban real estate in Serbia is expensive due
to a dearth of supply, bottlenecks in the
bureaucracy, and land restitution claims.
Selling and leasing individual RKB properties
could yield high profits for Zivanic, which would
explain RKB's high selling price. Besides being
a potentially lucrative investment, Zivanic
attaches sentimental value with his purchase,
stating that Verano "...will return glory to
Robne Kuce Beograd. I am Belgradian and I am
personally behind this business. I wish to work
in Serbia and I wish for people to trust me."

COMMENT
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7. The sale of RKB was significant for many
reasons. The government earned a substantial sum
from the sale, highlighting the benefits of
moving more companies through the bankruptcy and
privatization process. It was the first time a
bankrupt company was privatized through a public
auction. It is also the first time a domestic
investor has acquired a company of this
magnitude. The purchase is also one of the few
major challenges to Delta Holdings' significant
holdings on the retail industry. With additional
investment and financial backing, Verano owner
Zivanic may realize his goal of bringing prestige
back to the debt-ridden RKB as well as bringing
greater competition to the market. End Comment.

MUNTER