SERBIA: DELTA'S FINANCIAL WOES

UNCLAS BELGRADE 000429 SENSITIVE SIPDIS USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: ECON EINV ETRD SR SUBJECT: SERBIA: DELTA'S FINANCIAL WOES Reftel: 08 BELGRADE 1275 Summary -------------- ¶1. (SBU) Six months after opening the region's third largest shopping mall in Montenegro, Delta Holdings, owned by controversial Serbian billionaire Miroslav Miskovic, has landed in financial turmoil amid the deepening economic crisis. Ambitious real estate projects are now on hold, payments to suppliers are late, and workforce reductions are planned. Most recently, Delta asked the government for financial assistance. The company's reported economic woes could be Serbia's woes, as some estimate Delta's operations account for more than 5% of Serbia's GDP. Although Delta's troubles have been widely reported, the company maintains that things are fine; admitting only that its real estate division is feeling the pressure of the crisis. Delta will likely outlive the economic crisis, but many of the suppliers heavily dependent on the company may not. End Summary. Looking For a Government Bailout -------------- ¶2. (U) Delta Holding, owned by wealthy Serbian tycoon Miroslav Miskovic, is feeling the heat of the economic crisis. The financial health of the highly leveraged retail-to-real estate conglomerate has been the center of media speculation for months, most recently focused on Delta's request for $665 million in financial assistance from the Serbian government. In response, the government reportedly asked for a stake in the company in a debt-to-equity swap which Delta refused. Delta's Financial Woes -------------- ¶3. (SBU) Speculation about Delta's debt ranges up to $930 million, with $266 million of that coming up for repayment this year. In addition, Delta has outstanding accounts payable with a number of its suppliers, which may put Delta's total debt close to the $1.3 billion mark. Suppliers to Delta that work with USAID's programs told us Delta was 90 to 180 days behind in its payments. Citibank's Representative in Serbia Ana Draskovic told us she had a meeting with Delta at their request where Delta management talked about their financial difficulties and revealed that the company's only profitable business was its low-cost hypermarket chain Tempo, which it planned to build two more of in Serbia. Delta's Marketing and PR Director Jelena Krstovic publicly forecasted 2009 revenues at $4 billion, down from a previous $4.5 billion estimate. Krstovic insisted that massive layoffs were not planned, but Delta would downsize the workforce of its hardest hit sectors: automotive, real estate, and financial services. ¶4. (SBU) Some Serbians fear that Delta's problems are Serbia's problems as Delta's operations could account for more than 5% of GDP. Delta has a workforce of over 25,000 people and the conglomerate supports a number of suppliers and dependent companies. Delta keeps its financial information closely guarded, so it is unclear how influential Delta is on the Serbian economy. (Note: Within the past year, several American equity firms met with Delta representatives to explore investments in Delta. Privy to Delta's financial records; these firms told the Embassy that Delta was a financially solid company, but they were concerned about Miskovic's controversial image. End Note.) Delta in Denial -------------- ¶5. (SBU) Although the media and a number of Miskovic's peers believe Delta is ailing, Miskovic told the Ambassador that his company was not in financial trouble. This message was later echoed by his Chief of Staff Marko Obradovic in a meeting with the Embassy's Commercial Attache. Obradovic dismissed reports of Delta's accounts payable problem, but conceded that the real estate business was not moving as aggressively as planned because of the economy. Lofty Projects on Hold, But Still in Planning -------------- ¶6. (SBU) Late last year, Delta Real Estate (DRE) division CEO Dejan Racic told us his division began feeling the affects of the credit crunch and that some real estate projects had been postponed and project managers laid off. Of note is a shopping mall that is to be housed in the Stozice sports complex in Ljubljana. Delta has asked Slovenian developer Grep to lower the $309 million project cost and to postpone the project because of the crisis. Delta missed the payment of the second installment for the project even after three extensions. Racic told us that Delta was still interested in building the mall, but if Slovenia could get a better deal from another investor, it should do so. Delta still has its eye on Slovenia's crown jewel, retail chain Mercator, which has caused such a stir that the Slovenian government wants to block foreign ownership of the company. ¶7. (SBU) Reportedly, Delta will significantly reduce its business in the Republika Srpska (RS) due to difficulties securing loans from commercial banks. Delta already reduced work hours of the employees it inherited in the purchase of the Tropic supermarket chain, now rebranded as Maxi Markets and the Tempo Mega Market, to half-time. In addition, Delta cut the workforce at its three RS-registered sales offices: Darta Trgovina, Yuhor, and Knjaz Milos. Delta planned to pay $4 million for 58.5% of Boska department store in Banja Luka. Already several months late in payment for the store, the deal now appears to be in doubt. ¶8. (U) Despite its financial troubles, Delta is still announcing lofty investment plans. Recently, Racic announced DRE would build two shopping malls in Croatia. Racic also said Delta would build a second Delta City mall in Belgrade in mid-2010 when it expects Serbia to begin emerging from the crisis. (Note: In March 2009, Merrill Lynch and Serbian developer MPC opened the Usce Mall, which replaced Delta City as the largest mall in the Balkans. End Note). Comment -------------- ¶9. (SBU) Although it's unknown how much of Serbia's economy is linked to Delta Holdings, it is clear that the conglomerate's financial health is a barometer for the financial troubles of Serbian businesses and the economy as a whole. Even Serbia's largest private company is finding it hard to secure funding during the current credit crunch. However, given Delta's size and quasi-monopolist position in Serbia, Delta will likely survive the economic crisis. One can not say the same for the scores of small and medium-sized suppliers that are on the cusp of bankruptcy awaiting payment from Delta. The government has built into its economic stimulus package liquidity loans for SMEs, but it remains to be seen if these loans will be enough for the firms suffering from Delta's funding crunch. End Comment. Embassy Belgrade thanks Ljubljana and Sarajevo for their support in preparing this cable. MUNTER