SERBIA: TYCOON MISKOVIC WINS AUCTION - INTERCON BUYS ITS

UNCLAS SECTION 01 OF 03 BELGRADE 000335

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EINV SR
SUBJECT: SERBIA: TYCOON MISKOVIC WINS AUCTION - INTERCON BUYS ITS
HOTEL BACK

REF: A. (A) 07 BELGRADE 1384


B. (B) 07 BELGRADE 1514

SUMMARY

--------------




1. (U) In a March 31 televised auction, a holding company owned
by controversial Serbian tycoon Miroslav Miskovic purchased the
New Belgrade property holdings of the once well-known Yugoslav
firm Genex. In the $235 million purchase, Miskovic bought the
hotel formerly licensed as Intercontinental and upscale business
and residential apartments, acquiring more than 72,000 square
meters. Miskovic beat out rival tycoon Philip Zepter and Greek
firm Lampsa. Miskovic's consortium included Intercontinental
Hotels Group Management (IHG),so in an ironic twist following a
licensing dispute over the Intercontinental brand name in 2006
between Genex and IHG, IHG is now part owner of the hotel. A
separate tender for Genex hotels at the Kopaonik ski resort
yielded no bidders. End Summary.



Prime Property on the Block

--------------




2. (U) On December 27, 2007, the Privatization Agency (PA)
announced plans to sell the property of the once largest,
socially-owned foreign trade company in the former Yugoslavia,
International CG (commonly known as Genex),in two separate
auctions. Following the successful auction of department store
chain Robna Kuca Beograd's property last year (reftel A),PA had
hoped to see competitive bidding drive up Genex's sale price.
The auctions divided Genex's properties into those located in
New Belgrade and those in Kopaonik, Serbia's popular ski resort.
The deadline to apply to participate in the auctions was March

24.



One Auction Goes Ahead

--------------




3. (U) Genex property in New Belgrade included Continental
Beograd Hotel (formerly the Intercontinental, which lost its
license with IHG in 2006),an adjacent upscale business and
residential apartment complex, and a power facility that
provides electricity and heating for the entire complex. Out of
the 17 firms that bought tender documents, only three applied to
bid. Lampsa Hellenic Hotels from Greece bid in a consortium
with Starwood Hotel Management. Lampsa is the majority owner of
Hyatt Belgrade (which is adjacent to the Genex complex) and the
recent purchaser of Excelsior Hotel in Belgrade. The other two
bidders were Serbian tycoons Miroslav Miskovic and Philip
Zepter. Miskovic bid through a consortium with Intercontinental
Hotels Group Management (IHG) which owns seven hotel brands
including Intercontinental, Crown Plaza and Holiday Inn. IHG
plans to turn Continental into Crown Plaza. Zepter applied
together with Serbian tycoon Miordrag Kostic in partnership with
Barcelo Hotels and Resorts of Spain.



Zepter vs. Miskovic

--------------




4. (U) During the televised March 31 auction, Lampsa bid up to
$210 million after which a short battle between Zepter and
Miskovic. Miskovic won the bid at $235 million. Miskovic
signed an agreement with IHG in May 2007 to build a new
Intercontinental Hotel by 2010 close to Miskovic's Delta
headquarters which is actually located in the middle of the
Genex complex. Dejan Racic, Miskovic's representative at the
auction and director of Delta Real Estate, said after the
auction that with an investment of at least $60 millions,
Continental will be turned into Crown Plaza.



BELGRADE 00000335 002 OF 003



Expectations Were Higher

--------------




5. (U) Economy Minister Mladjan Dinkic told AMCHAM on March 21
that the sale of Genex would proceed, despite political
uncertainty, because real estate has intrinsic value. He added,
however, that all other important privatizations would be
delayed until after the May 11 parliamentary elections. He
expected both tenders to be successful, especially considering
the attractive locations of Genex real estate. The press
estimated the Genex property in New Belgrade would sell for over
$300 million.



Kopaonik Fails to Attract Bidders

--------------




6. (SBU) On March 25, PA annulled the tender for Genex property
in Kopaonik since none of the firms that bought the tender
documentation submitted an application to bid. Nebojsa Ciric,
Assistant Minister for Economy and Regional Development, blamed
the political situation in Serbia for the failure. A prominent
banker told Econoff that the minimum price was too high. The
minimum price of $70 million for the Genex hotels in Kopaonik
included the Hotel Grand, Konaci apartments, and accompanying
restaurants, cafi bars, etc. Others speculated in the press
that the problem was excessive tender requirements. Aleksandar
Ljubic from PA told Econ FSN on March 31 that the tender for
Kopaonik property would be announced again with a lower minimum
bid, but without change in tender conditions. Ivana Grbic, PR
Manager for the Ministry of Economy and Regional Development,
told Econ FSN on April 2 that there is also speculation that the
tender was annulled after PA received word that Albanian
investors, though a consortium, would bid on the property.
(Note: Kapaonik Mountain forms part of the border between
Serbia and Kosovo. End Note.) PA Director Vesna Dzinic said the
new tender for Kopaonik hotels would be announced at the end of
May or the beginning of June.



Miskovic Gets a Deal?

--------------




7. (SBU) Miskovic bought Genex property in New Belgrade for
$3,200 per square meter although the current going price for
residential and business apartments in the area is $4,600 per
square meter. Dzinic told Econ FSN after the auction that the
price reflected Serbia's political situation and the failed
tender for Kopaonik hotels. Dzinic also said the rest of
Genex's property would be offered in two additional tenders by
the end of the year.



Comment

--------------




8. (SBU) Genex's property has been the subject of controversy
before with the arrest of several senior managers in October
2007 for alleged illegal land sales (reftel B). Despite the fact
that Miskovic's winning bid came at a public auction against a
bitter rival, Miskovic's persona creates speculation that there
was some type of fixed deal involved. The limited number of
bidders and the failure of the Kopaonik auction indicate some
cooling of international interest in Serbia's property market.
Some of this is attributable to the global slowdown, but
political uncertainty is an important factor.




9. (SBU) Post continues to see U.S. firms exploring investments
in Serbia's real estate sector, often in partnership with local
tycoons. Miskovic and other controversial tycoons continue to

BELGRADE 00000335 003 OF 003


seek out international investors for capital as well as for the
legitimacy they bring. Miskovic has met with three potential
U.S. investment partners in the past couple of months and told
two of them that he has a goal of listing his firm, Delta, on
the London Stock Exchange. That goal may require Miskovic to
adjust some of his aggressive business practices and confront
his image as a monopolist and dirty dealer.



10 (SBU) Miskovic and the other tycoons play an important role
in the opaque financing of political campaigns. They often
hedge their bets by spreading money across all the major
parties. While some tycoons say privately that their businesses
will benefit from movement toward the EU and greater business
connections with the large markets of Western Europe, many
maintain strong business operations or relationships with
Russia. Thus, just as with party financing they are hedging
their bets, and have not yet clearly thrown their support toward
a European future for Serbia. End Comment.
MUNTER