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