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RUSSIA
REAL ESTATE &
CONSTRUCTION
SECTOR 2019/2020
An EMIS Insights Industry Report
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved.
CONTACT US www.emis.com FOLLOW US
ABBREVIATIONS AHML Agency for Housing Mortgage Lending CAGR Compound Annual Growth Rate FDI Foreign Direct Investment GDP Gross Domestic Product GLA Gross Leasable Area GLA Gross Leasable Area GDR Global Depository Receipt MBS Mortgage-Backed Securities RUB Russian Rouble Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved.
FOREWORD
CONTENTS 01 EXECUTIVE SUMMARY
Sector in Numbers
Sector Overview
p.5
p.6
Sector Snapshot
Sector Outlook
Driving Forces
Restraining Forces
02 SECTOR IN FOCUS p.14
Focus Point - Construction Works Value by Region
Main Economic Indicators
Main Sector Indicators
Construction Activity
Number of Buildings Completed
Number of Enterprises
Global Positioning
Foreign Investments
Employment and Wages
03 COMPETITIVE LANDSCAPE p.25
Timeline - Russia Real Estate and Construction
Highlights
Construction Market
Real Estate Market
Top M&A Deals
M&A Activity
04 COMPANIES IN FOCUS p.32
Mostotrest
LSR Group
Etalon Group
Velesstroy
Mosinzhproekt
05 REGULATORY ENVIRONMENT
CONTENTS Main Regulatory Bodies
Government Policy
Mortgage Subsidy Program
p.44
06 RESIDENTIAL SECTOR p.48
Focus Point - Residential Housing Stock
Highlights
Main Events
Construction Activity
Number of Buildings Completed
Construction in Progress
Residential Stock
Apartment Stock
Apartment Prices
07 NON-RESIDENTIAL SECTOR p.58
Highlights
Main Events
Number of Buildings Completed
Real Estate Investments
Retail Market
Office Market
Rental Rates
08 INFRASTRUCTURE SECTOR p.68
Highlights
Main Events
Government Expenditure
Infrastructure Projects
Investment Programme, 2016-2020
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020
An EMIS Insights Industry Report
Foreword
In 2018, the Russian construction and real estate sector
received a boost from infrastructure development projects,
but even the FIFA World Cup event in 2018 did not manage
to turn around the negative momentum in the residential
and non-residential segments, which both saw reduced
activity during the year.
Krasimir Yordanov,
Research Analyst,
EMEA
In the construction sector, the infrastructure segment alone experienced positive growth in 2018,
driven by rising government expenditure on infrastructure facilities in connection with the FIFA World
Cup and the long-term commitments of the authorities to invest in infrastructure projects. The
government’s programmes for transport and energy infrastructure investment – worth some RUB
11.5tn for the period 2016-2020 – will continue to support overall sector growth.
2018 was a tough year for Russian residential and non-residential real estate developers as the
overall number of buildings completed shrank by 4.8% y/y. The reduced supply stems from subdued
demand caused by the shrinking real disposable income of the population and the reduced real
capital expenditures by Russian companies. The slump could have been even greater were it not for
lower interest rates and the state programme for subsidising interest rates for mortgage loans.
Increased urbanisation, improving investment yields, better access to finance and improved living
standards will be among the main factors driving the construction and real estate sector in the years
to come.
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved.
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020
An EMIS Insights Industry Report CONTENTS
01
EXECUTIVE
SUMMARY
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 6
01 EXECUTIVE SUMMARY CONTENTS
Sector in Numbers
13.6% No. 3 in USD
of GDP Europe 2.4bn
Commercial
Real Estate & Residential
Real Estate
Construction Construction
Investments
Sector Market
RUB
8.39tn 260,000 70 m²
Construction Buildings Average Size of
Works Value Completed Apartments Built
USD RUB
389mn 5.1mn 1.6tn
Net FDI in Real Construction Sector Expenditure
Estate Activities Employees on Road
Infrastructure
Note: Data for 2018.
Source: Federal Treasury, Statistics Office, Colliers International, CEIC, MarketLine
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 7
An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Sector Overview Russia’s construction sector emerged from recession in 2018, with the value of construction works rising for the first time in five years. Growth was driven entirely by large-scale infrastructure projects and works related to the FIFA World Cup the country hosted in the summer of 2018. The expanding construction sector provided a strong boost to Russia’s economy, which grew by 2.3% in 2018, the fastest pace in six years. That said, the residential building segment continued to decline in 2018 as real disposable incomes fell for a fifth year in a row. Short-term prospects for the residential building segment remain subdued, leaving the civil engineering segment to drive growth in the sector in the next few years. Entry Modes The best way to enter the sector is through acquisition of existing players and minority stake purchases since the Russian construction and real estate market is highly competitive and fragmented. Moreover, the crisis in the sector in recent years has allowed the acquisition of distressed assets in the sector. Another way to enter the real estate and construction space is through collaboration with domestic developers, which have the most experience of the local regulatory requirements and business environment. Foreigners can acquire and rent property in Russia, but there are some legal limitations; for example, foreign citizens and legal entities cannot possess land plots in border areas. Segment Opportunities Historically, Moscow and St Petersburg have offered the best opportunities for growth in construction and real estate development because of their high levels of urbanisation. However, with increasing investment in infrastructure development in suburban and remote areas, the economic growth in those regions will expand, increasing demand for new residential and non-residential buildings. Unlike the utility infrastructure segment, transport infrastructure is likely to outperform on the back of rising government investments. Gazprombank estimates that the government will allocate RUB 8.8tn for transport infrastructure over 2016-2020, up from RUB 7.7tn in 2011-2015. Road infrastructure spending will witness the strongest increase, of 11%, for the stated period. Government Policy The infrastructure segment of the construction sector is supported by RUB 11tn of investment, set aside for transport and energy infrastructure for the period 2016-2020. The government is also supporting the real estate and construction sector through a state-backed mortgage lending programme, providing households and families with reduced interest rates on mortgage lending. Source: MarketLine, Statistics Office, CEIC, Gazprombank RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 8 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS
Sector Snapshot
Russia Real Estate & Construction
Sector
REAL ESTATE SECTOR
GVA: RUB 8,569bn
CONSTRUCTION SECTOR
GVA: RUB 5,563bn
RESIDENTIAL NON-RESIDENTIAL COMMERCIAL REAL ESTATE
CONSTRUCTION CONSTRUCTION INVESTMENTS: USD 2.4bn
Number of Residential Number of Buildings
Buildings Completed: Completed: 17,452 Retail Market: Retail Space
242,053 Floor Area of Buildings USD 1,056bn Stock: 27.6mn m2
Floor Area of Residential Completed: 28.7mn m2 Office Market: Office Space
Buildings Completed: USD840mn Stock: 18.3mn m2
100.6mn m2 Industrial Market:
USD 384mn
CONSTRUCTION KEY REAL ESTATE KEY
PLAYERS REVENUES PLAYERS REVENUES
1. Stroygazmontazh: RUB 362bn 1. RGS Assets: RUB 54bn
2. Stroygazconsulting: RUB 154bn 2. Gazpromnefti-BM: RUB 27bn
3. Stroytransgaz: RUB 153bn 3. Iks 5 Nedvizhimosti: RUB 18bn
4. Mostotrest: RUB 148bn 4. PIK-Group AO: RUB 17bn
5. Mosinzhproekt: RUB 137bn 5. Gzhf Pri Prezidente RT: RUB 16bn
Note: Data for 2018 unless otherwise stated.
Source: Statistics Office, CEIC, EMIS Company Database, Colliers, Company Data
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 9
An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Sector Snapshot Russia Real Estate & Construction Russia’s real estate and construction sector generated a combined gross value added (GVA) of RUB 14.2tn in 2018, equal to 13.6% of the country’s GDP. In 2018, the value of construction works increased by 10.5% y/y to RUB 8.4tn. What’s more important is the fact that, in real terms, the value of construction works increased by 5.9% y/y in 2018, registering the first rise in five years. The overall number of buildings completed decreased by 4.8% y/y to 259,505 units. The non-residential sector led the decline, with 17,452 new buildings completed, down 7.2% y/y. The aggregate number of residential buildings completed decreased by 4.6% y/y to 242,053 units. In terms of floor area, residential developers completed a total of 100.6mn m², 2.9% less y/y. The non-residential sector experienced a fall of 12.4% y/y to 28.7mn m². Construction activity in the housing segment continued to shrink in 2018. A residential housing area of 75mn m² was completed in 2018, a decrease of 4mn m² compared to 2017. In 2018, the total leasable area in opened shopping centres amounted to 576,000m², down 26% y/y, according to Colliers International. Total Russian shopping centre stock increased to 27.6mn m² and retail stock per 1,000 capita increased to 189m², compared to 184m² per 1,000 inhabitants in 2017. The office segment of the real estate market in St Petersburg saw an increased volume of completions in 2018. A total area of 202,000m² of office completions were made, up from 116,100m² in 2017, according to Colliers International. In 2018, the completed office space in Moscow was the lowest in the last 15 years, amounting to 125,400m². The top players in Russia’s construction sector are those engaged in oil and gas industry-related projects. Privately-owned Stroygazmontazh, mainly involved in the construction of trunk pipelines, onshore and offshore facilities, and other oil and gas infrastructure, was the sector’s largest company with revenues of RUB 362bn. Stroygazconsulting, with revenues of RUB 154bn, ranked second, ahead of Stroytransgaz, which generated RUB 153bn in revenue. Stroygazconsulting’s main business lines include construction of oil, gas and condensate fields, compressor stations, trunk pipelines, motor roads, bridges, railways and metros (underground rapid-transit urban railways). Stroytransgaz is one of the largest Russian contractors offering a full range of construction and engineering services in the construction of facilities of the power, oil and gas and petrochemical industries, transport and civil infrastructure. Source: Statistics Office, CEIC, EMIS Company Database, Colliers, Company Data RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 10 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS
Sector Outlook
Comments
Residential and non-residential building and the oil and gas pipeline sectors will drive solid headline
construction sector growth in Russia, according to BMI Research. Moreover, an acceleration in
economic growth is likely to support investment levels more broadly, while Chinese investors are also
likely to continue funding infrastructure projects in Russia in line with the Belt & Road initiative. The
construction industry is estimated to grow by an average of 4.2% per year in real terms between 2018
and 2025. The residential and non-residential segment is expected to outperform Russia's broader
construction industry with an annualised average growth rate of 5%. Rising purchasing power will
lead to greater demand for mortgages, while accelerated economic activity will boost investments in
commercial and industrial infrastructure. For 2018-2025, the overall infrastructure industry will likely
grow by a real 2.7% on average per year. According to BMI Research, Russia's advantageous
geographical position, spanning the Eurasian continent, will ensure that investment continues to flow
into its transport sector, fuelling outperformance in the country's rail sector in particular on the back
of elevated levels of Chinese investment.
Sector Forecasts
2018f 2019f 2020f 2021f 2022f 2023f 2024f
Construction Industry Value, RUB bn 5,629 5,983 6,476 6,995 7,555 8,229 8,945
Construction Industry Value, Real Growth, y/y change 4.5% 2.1% 4.2% 4.1% 4.1% 5.0% 4.8%
Infrastructure Industry Value, RUB bn 3,355 3,576 3,834 4,108 4,369 4,646 4,936
Infrastructure Industry Value Real Growth, y/y change 3.8% 2.4% 3.1% 3.2% 2.4% 2.4% 2.3%
Gross Construction Output, nominal, RUB bn 13,508 15,087 16,228 17,299 18,406 19,573 20,793
Gross Consumption Output, real growth rate, y/y change -1.0% 3.8% 1.8% 1.9% 1.9% 1.9% 1.8%
Source: BMI Research, Oxford Economics
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 11
An EMIS Insights Industry Report01 EXECUTIVE SUMMARY CONTENTS Driving Forces Government programmes for infrastructure development were the main driving force behind sector development in 2018. Oil and gas revenues are key to the fiscal budget, which finances about 70% of the country’s infrastructure investments. Thus, the recovery of energy prices on world markets will increase spending on infrastructure projects and boost construction companies in the country. As long as the economy keeps growing, developers will revive stalled projects and invest in new ones, moving the market. Moreover, urbanisation, rising investment yields, access to finance and improving living standards will be among the main factors driving construction and the real estate sector in the years to come. External Recognising the long-term strategic importance of infrastructure investments for the economy, the Russian government has set aside ab increasing share of its government expenditure on infrastructure development. This creates demand for construction activities in the segment and indirectly contributes to construction and real estate development in the residential and non- residential segments as infrastructure investments lead to economic growth and social welfare. Preparations for the 2018 FIFA World Cup stimulated new spending on infrastructure and the construction of stadiums, roads, airports and railways. Russia’s urbanisation rates have been increasing steadily, creating opportunities for real estate developers and construction companies, especially in the country’s bigger cities. In 2002, 73% of the population resided in urban areas – a share that had risen to 74.1% by 2016. The construction and real estate sector is highly sensitive to the economic cycle and the Russian economy accelerated its growth rate to 2.3% y/y in 2018, up from a real 1.6% in 2017. Internal Russia is home to some 146.8mn people, making it one of the most populated countries in the world. This, coupled with rapid urbanisation trends, creates natural demand for real estate development and construction services. In fact, Russia’s real estate and construction market is Europe’s third largest, making it attractive for foreign players. Russia is one of the world’s top countries in respect of oil and gas reserves and is a major oil and gas supplier for the global economy, which is a major internal driving factor for the development of pipeline infrastructure. According to Statistics Office data, in nominal terms, construction costs for apartments have risen more slowly on average than the average price of a standard apartment across the country. In 2017, the difference between the average apartment price and the average construction cost was RUB 14,900 per m²; this differential expanded to almost RUB 19,200 per m² on average in 2018, creating a strong incentive for construction companies to increase the number of residential projects. Source: Statistics Office, CEIC, MarketLine RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 12 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Restraining Forces Western sanctions have reduced the available options for financing key infrastructure investment projects and made it more difficult and less attractive for foreign investors to enter the property market. The opportunities for growth are to a large extent confined to large cities such as Moscow and St Petersburg. The fact that the residential and non-residential segments continued to shrink in 2018 whilst the economy gathered steam implies structural problems for the real estate and construction sector. The international sanctions imposed on Russia over its annexation of Crimea in 2014 are creating an uncertain environment for both domestic and foreign investors, which, coupled with currency volatility, further discourages sector investment. External Russia’s ongoing political isolation due to the annexation of Crimea in 2014, and the sanctions imposed by the West, are weighing on foreign investor sentiment and challenging the funding capabilities of existing players. Moreover, according to BMI Research, there is a high degree of corruption in government administration, making it difficult for foreign companies to compete for tenders against domestic Russian firms. Despite the fact that the economy returned to growth mode in 2017 and 2018, activity in the sector, especially in the residential and non-residential segment, remains subdued. The exception is infrastructure construction, which continues to drive sector growth, but the volatility of the oil and gas price is causing uncertainty for future funding availability. In addition, the US imposed sanctions in 2018 specifically targeting the country's oil and gas sector, which is a key source of Russian infrastructure investment. Internal The different degree of economic development between regions concentrates investments in the larger cities such as Moscow and St Petersburg, while the smaller towns suffer from a surplus of building stock. Domestic state-owned players dominate the infrastructure segment, with little penetration by foreign companies. In the coming years, unfavourable demographic factors could weigh on demand for new residential houses and apartments. The number of potential buyers is expected to have fallen by 20% by 2020 and is forecast to continue dropping in the years after that, according to Construction.ru. Foreign restrictions and an entrenched bureaucratic environment will reduce demand for commercial property. Source: Construction.ru, BMI Research, EMIS Insights RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 13 An EMIS Insights Industry Report
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020
An EMIS Insights Industry Report CONTENTS
02
SECTOR
IN FOCUS
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 1402 SECTOR IN FOCUS CONTENTS
FOCUS POINT
Construction Works Value by Region, 2018, RUB bn
RUB 1,360bn
Urals
RUB 1,212bn
Northwestern RUB 712bn
Siberian
RUB 537bn
Far Eastern
RUB 2,065bn
Central
RUB 713bn
Southern RUB 1,283bn
Volga
RUB 345bn
North Caucasian
Source: Statistics Office, CEIC
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Main Economic Indicators
2012 2013 2014 2015 2016 2017 2018
GDP, Current Prices, RUB bn 68,164 73,134 79,058 83,094 86,014 92,101 103,876
GDP, Current Prices, USD bn 2,191 2,294 2,075 1,368 1,295 1,579 1,654
Real GDP Growth, % 3.5 1.3 0.7 -2.3 0.3 1.6 2.3
Construction Sector GVA, Current Prices, RUB bn 4,524 4,475 4,677 4,722 4,977 5,056 5,563
Construction Sector GVA, % of GDP 6.6 6.1 5.9 5.7 5.8 5.5 5.4
Real Estate Sector GVA, Current Prices, RUB bn 10,195 11,384 7,287 7,577 7,851 8,231 8,569
Real Estate Sector GVA, % of GDP 15.0 15.6 9.2 9.1 9.1 8.9 8.2
CPI, y/y change, % 6.6 6.5 11.4 12.9 5.4 2.5 4.3
Construction Sector PPI, y/y change, % 6.9 4.9 7.2 10.3 3.2 3.1 7.3
USD/RUB Exchange Rate, period-end 30.4 32.7 56.3 72.9 60.7 57.6 69.5
Monetary Policy Rate, period-end, % 8.25 5.50 17.00 11.00 10.00 7.75 7.75
Population, mn 143.3 143.7 146.3 146.5 146.8 146.9 146.8
Unemployment Rate, % 5.1 5.6 5.3 5.8 5.3 5.1 4.9
Trade Balance, USD bn 191.7 180.6 200.1 203.8 144.5 120.5 167.9
Trade Balance, % of GDP 8.7 7.9 9.6 14.9 11.2 7.6 10.2
Net FDI in Construction Sector, USD mn 3,928 2,895 2,718 -1,051 -342 2,072 -214
Net FDI in Real Estate Activities, USD mn 1,984 1,728 -830 339 399 1,402 389
Source: Statistics Office, Central Bank, Ministry of Finance, CEIC
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Main Sector Indicators
2013 2014 2015 2016 2017 2018
Construction Works Value, RUB bn 6,020 6,125 7,010 7,214 7,573 8,386
Construction Works Value, real y/y change, % 0.6 -2.7 -4.0 -2.4 -0.2 5.9
Number of Buildings Completed, units 258,119 304,194 306,391 278,295 272,615 259,505
Area of Buildings Completed, thou m³ 526,670 617,791 622,763 608,499 599,393 570,011
Floor Area of Buildings Completed, mn m² 118 139 139 136 137 129
Number of Apartments Completed, thou units 929 1,124 1,195 1,167 1,139 1,076
Average Floor Area of Apartments Completed, m² 76 75 71 69 70 70
Residential Housing Stock Area, mn m² 3,359 3,465 3,581 3,653 3,708 n/a
Residential Housing Stock, Number of Apartments, mn
61 63 64 65 66 n/a
units
Average Construction Price, Apartments, RUB/m² 36,267 37,786 39,142 40,636 40,066 41,490
Monthly Nominal Wage in Construction, RUB 27,701 29,354 29,960 32,332 34,450 38,119
Monthly Nominal Wage in Construction, % of Country
93 90 88 88 88 88
Average
Monthly Nominal Wage in Real Estate, Renting and
33,846 37,559 39,815 29,531 31,417 32,908
Business Activities, RUB
Monthly Nominal Wage in Real Estate, Renting and
114 116 117 80 80 76
Business Activities, % of Country Average
Employment in Construction Sector, period-average,
5,712 5,664 5,652 5,535 5,263 5,129
thou people
Source: Statistics Office, CEIC
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 17
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Construction Activity
Comments
The value of construction works in Russia increased by 5.9% y/y in real terms in 2018, registering the
first rise in five years. In nominal terms, growth stood at 11% y/y, driven by rising inflation pressure
during the year and an expanding infrastructure segment. Inflation in the sector, measured by the
change of the construction producer price index, accelerated to 7.3% y/y in 2018 from 3.1% y/y in 2017.
Infrastructure was the only segment of the construction sector to experience positive growth in 2018,
driven by rising government expenditure related to the FIFA World Cup and the long-term
commitment of the authorities for investment in infrastructure projects.
On the other hand, both the residential and the non-residential segments of the real estate market
saw the number of new buildings completed shrinking, highlighting the weakness of those two
segments. The commercial real estate segment in Russia saw a 50% plunge in investments in 2018 as
high volatility on currency markets, escalation of geopolitical tensions and instability of debt
financing weighed on investor sentiment and project economics.
Construction Works Value, RUB bn Real Growth in Construction Works, y/y
8,386
7,573
7,213 5.9%
6,019 6,125 6,148 4.2%
5,714
5,140 3.3%
0.6%
-0.2%
2011 2012 2013 2014 2015 2016 2017 2018
-2.4%
-2.7%
-4.0%
2011 2012 2013 2014 2015 2016 2017 2018
Source: Statistics Office, CEIC
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 18
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Number of Buildings Completed
Comments
The aggregate number of buildings completed across segments decreased for a third year in a row in
2018. The crisis in the construction sector began in early 2014, after the economy was hit by Western
sanctions over Russia’s annexation of Crimea. The situation deteriorated further with a plunge in oil
and natural gas prices during 2014-2015, as the Russian economy is highly dependent on exports of
these energy commodities.
Not only did the number of buildings completed continue to fall in 2018, the rate of decline deepened
to 4.8% y/y from 2% y/y in 2017. In 2018, developers completed a total of 242,053 residential and 17,452
non-residential buildings; a decrease of 4.6% y/y and 7.2% y/y, respectively. The only exception was
the administrative segment, which saw a rise of 3.2% y/y in the number of completed new buildings.
In volume terms, residential buildings completed declined by 5.6% y/y to 379mn m³, while non-
residential buildings completed shrank by 3.6% y/y to 191mn m³.
Number of Buildings Completed Buildings Completed by Type, 2018, units
304,194
306,391
278,295
272,615
259,505
258,119
17.9%
241,424
Residential
6.2% 6.9% 242,053
0.7%
-2.0%
-4.8% Non-
-9.2% Residential
17,452
2012 2013 2014 2015 2016 2017 2018
Number of Buildings Completed, units y/y change
Source: Statistics Office, CEIC
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Number of Enterprises
Comments Number of Construction Enterprises,
units
The number of construction enterprises in Russia
279,496
271,604
has increased in recent years, rising from over
209,000 in 2011 to a little more than 279,000 in
232,154
226,838
217,961
2017, according to the latest data from the
209,185
205,075
country’s statistics office. More than 99% of the
enterprises in the sector are privately-owned. The
number of companies owned by the federal and
regional governments stood at 1,201 in 2017,
down from 1,733 in 2010. This decline was the
result of the privatisation of state-owned
companies.
Eleven privatisation deals were completed during
the 2017-2019 period, according to the EMIS 2011 2012 2013 2014 2015 2016 2017
DealWatch database. The total value of these
deals was USD 344mn.
Private Construction Enterprises, units State and Municipal Enterprises, units
276,944
269,548
1,607
229,943
223,022
1,399
214,055
205,416
1,282 1,293
201,273
1,213 1,204 1,201
2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017
Source: Statistics Office, CEIC
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Global Positioning
Europe Construction Industry Value by Country, 2017
Russia
USD 59.6bn
USD 1,226bn (4.9%)
Total
Germany
UK USD 135bn
USD 177bn (11%)
(16.2%)
France
USD 140.7bn
(11.5%)
7. Rest of Europe
USD 475bn
(37%)
Italy
Spain USD 119.5bn
USD 119.2bn (9.7%)
(9.7%)
Note: USD 177bn – Construction Industry Value; 14.4% – Share of Total
Source: MarketLine
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Global Positioning (cont’d)
Europe Real Estate Market Value by Country, 2017
Russia
USD 52.3bn
USD 967.6bn (5.4%)
Total
Germany
UK USD 248.9bn
USD 151.9bn (25.7%)
(15.7%)
France
USD 128.8bn
(13.3%)
Rest of Europe
USD 272.2bn
(28.1%)
Italy
Spain USD 72.6bn
USD 40.9bn (7.5%)
(4.2%)
Note: USD 177bn – Real Estate Market Value; 14.4% – Share of Total
Source: MarketLine
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Foreign Investments
Net FDI in Construction Sector, USD mn Net FDI in Real Estate Activities, USD mn
2,478
3,771 3,928
1,984
2,895 2,718 1,728
1,402
2,072
339 615
399
-342 -234
-1,051 -830
2011 2012 2013 2014 2015 2016 2017 Jan-Sep
2011 2012 2013 2014 2015 2016 2017 Jan-Sep 2018
2018
Comments
In 2017, ahead of the FIFA World Cup, the Russian real estate and construction sector attracted the
largest amount of foreign direct investment (FDI) since the economic crisis. The construction sector
saw net inflows of FDI of USD 2bn, after net outflows of USD 342mn in 2016. The real estate segment
attracted USD 1.4bn of net inflows, up from USD 399mn in 2016. After the West imposed economic
sanctions on Russia, and oil and gas prices plunged in 2014 and 2015, the Russian construction and
real estate market became less attractive for foreign investors. The rouble depreciated by about half
in value against the US dollar between 2013 and 2015, leading to a dearth of foreign investment in the
country. In the wake of the crisis, foreign investors removed around USD 1.3bn from the construction
sector and roughly USD 830mn from the real estate market. In the nine months of 2018, investor
sentiment once again became gloomy as foreign investors pulled out USD 234mn from the
construction sector on a net basis. On the other hand, the real estate sector attracted USD 615mn over
the same period, up 25% y/y.
Source: Central Bank
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Employment and Wages
Comments Construction Sector Employees, thou
people
Wages in the construction and real estate sector
have been trending higher as rising inflation in
the country has prompted employees to seek
higher levels of pay. In 2011-2018, the monthly
average nominal wage in the construction sector
increased by 60% cumulatively to reach RUB
38,119, or about 90% of the country’s average
5,712
5,664
5,652
5,642
wage. In the real estate sector, the average
5,535
5,474
monthly wage increased by a cumulative 16%
5,263
between 2011 and 2018, reaching RUB 32,908 –
5,129
20% higher than the average monthly wage in
Russia in 2018. There were 5.1mn people
employed in the construction sector as of end- 2011 2012 2013 2014 2015 2016 2017 2018
2018, down from 5.7mn in 2013.
Construction Sector Wages Real Estate Sector Wages
10.6% 11.0%
9.5% 9.4%
9.6% 6.0% 6.4%
4.7%
7.9%
6.7% 6.6%
29,960
6.0%
39,815
38,119
37,559
29,531
34,450
33,846
32,908
32,332
31,417
30,926
29,354
27,701
25,951
2.1%
-25.8%
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
Monthly Nominal Wage in Construction, RUB Monthly Nominal Wage in Real Estate, RUB
y/y change y/y change
Source: Statistics Office, CEIC
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 24
An EMIS Insights Industry ReportRUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020
An EMIS Insights Industry Report CONTENTS
03
COMPETITIVE
LANDSCAPE
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 2503 COMPETITIVE LANDSCAPE CONTENTS
Timeline Russia
Real Estate
1930
& Construction
Market Players
Mostotrest, a leading infrastructure construction
company, is established.
1991 Development Milestones
The government launches the housing privatisation
programme.
1993 Market Players
LSR Group, Russia’s second-biggest
homebuilder, is established.
1994 Development Milestones
The government launches the housing allowance
programme, which provides housing subsidies for poor
households.
1996 Market Players
Russian oil and gas construction company
Stroygazconsulting is founded.
2005 Development Milestones
Russia enacts the new Housing Code aiming to
develop a well-functioning housing market offering
affordable housing for the middle class and to
provide social housing for the poor.
2006 Development Milestones
Russia enacts the Summer Cottage Amnesty, legalising
houses built in the past without building permits.
2012 Market Players
Mostotrest expands the geographic scope of its
business with a number of acquisitions.
2015 Development Milestones
Russia enacts the State-Backed Mortgage
Lending Programme.
2017 Development Milestones
The government extends the mortgage subsidy
program to include families with second and
third child. 2018 Market Players
LSR Group sells its factory in Moscow in a strategic
move to shift its focus to the real estate
development segment.
Source:
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 26
An EMIS Insights Industry Report03 COMPETITIVE LANDSCAPE CONTENTS Highlights Overview With close to 280,000 construction and more than 334,000 real estate companies, the Russian real estate and construction market is highly competitive and fragmented. The private sector dominates the market across all segments but many are key providers of construction services for large state- owned companies, such as gas giant Gazprom. The bulk of the companies from the sector operate in the regions of Moscow and St Petersburg, where urbanisation rates are the highest in Russia. According to the EMIS Company Database, the largest 20 construction companies accounted for 19% of overall sector revenues in 2017, while the 20 largest real estate companies had a combined share in total sector revenues of 10%. Main Players The main players in the construction sector are engaged in projects for the oil and gas industry, the backbone of Russia’s economy. Privately-owned Stroygazmontazh, engaged in the construction of oil and gas pipelines, was Russia’s largest construction company by revenue in 2017. RGS Assets, also privately-owned, is the largest player in the real estate segment. In Moscow, the largest company by number of residential projects offered is the private company Etalon Group. Established in 1987, it is one of the leading real estate development and construction companies in Russia. Other notable names include Mostotrest, a leading player in the Russian infrastructure construction market, as well as Velesstroy – one of the leading companies implementing oil and gas and electric power projects. Entry Modes As Russia’s relations with the West remain tense, foreign investors are reluctant to invest in the Russian real estate and construction market. Moreover, there are some legal limitations, according to the Land Act, as foreign citizens and foreign legal entities cannot acquire land plots located in the border territories. Restrictions also apply to the acquisition of land parcels that have previously been federal or municipal property. There are no restrictions on the acquisition of buildings unless they are situated in border areas or are listed as secret. Over the 2017-2019 period, about 90% of all M&A deals were with Russian investors, and buyers on just three deals were US-based. Investors, coming from EU, signed a total of ten deals for the same period. The best way to gain exposure to the sector is through minority stake purchases. Source: EMIS Company Database, EMIS DealWatch, Land Act RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 27 An EMIS Insights Industry Report
03 COMPETITIVE LANDSCAPE CONTENTS
Construction Market
Top 10 Companies by Sales Revenues, Construction Sector, 2017
1. Stroygazmontazh 2. Stroygasconsulting
(Moscow) (Saint-Petersburg)
RUB 361.9bn RUB 153.8bn
Market Share: 3.6% Market Share: 1.5%
4. Mostotrest 3. Stroytransgaz
RUB 147.8bn RUB 153.2bn
Market Share: 1.5% Market Share: 1.5%
5. Mosinzhproekt 6. Atomstroieksport
RUB 136.6bn RUB 125.4bn
Market Share: 1.4% Market Share: 1.2%
8. Glavnoe Upravlenie
Obustroistva Voisk 7. Rzdstroy
RUB 80.6bn RUB 119.9bn
Market Share: 0.8% Market Share: 1.2%
9. Uk Orla 10. Velesstroy
RUB 79.0bn RUB 73.8bn
Market Share: 0.8% Market Share: 0.7%
Close to 280,000 companies operate in Russia’s construction sector. The largest 20 enterprises
controlled about 19% of total sector revenues in 2017, according to EMIS Company Database. The
largest player in terms of revenues is Stroygazmontazh. Its main areas of activity include trunk
pipeline construction, onshore facilities construction, offshore construction and gasification. In 2017,
it generated revenues of RUB 362bn, or 3.6% of the total revenues of the construction sector.
Privately-owned Stroygazconsulting ranked second, with revenues of RUB 153.8bn in 2017.
Stroygazmontazh and Stroygazconsulting are the main contractors of Gazprom, Russia’s gas
monopoly. The construction sector is dominated by privately-owned enterprises that represented
99.1% of the total number of construction companies operating in the country as of 2017.
Source: EMIS Company Database
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Real Estate Market
Top 10 Companies by Sales Revenue, Real Estate Sector, 2017
1. RGS Assets
2. Gazpromnefti-BM RUB 53.9bn
RUB 26.9bn Market Share: 2.0%
3. IKS 5 Market Share: 1.0%
Nedvizhimosti
RUB 17.5bn
Market Share: 0.7% 4. PIK-Region
RUB 17.0bn
Market Share: 0.6%
5. PIK-Region
RUB 17.0bn
Market Share: 0.6%
7. M AO
RUB 13.5bn
6. Ladiya-Finans Market Share: 0.5%
RUB 15.0bn
Market Share: 0.6%
9. Main Administration For
Service To The Diplomatic
RUB 11.3bn
8. Rem GUP Market Share: 0.4%
RUB 13.3bn 10. 7-i Tmp
Market Share: 0.5% RUB 10.3bn
Market Share: 0.4%
As of end-2017 there were 334,400 registered enterprises in the Russian real estate sector, down from
348,200 units registered a year earlier. The decline comes in light of the shrinking real estate market
due to subdued business activity and real disposable incomes. The market structure of the segment is
also highly fragmented with revenues widely dispersed among companies. The ten largest real estate
developers had a combined share of 10% of total revenues in 2017 with the largest – the privately-
owned RGS Assets – contributing 2% of the total, according to EMIS Company Database. Second-
ranked PIK Group is mainly involved in developing large-scale residential projects within the Moscow
Metropolitan Area and in selected Russian cities. As of end-2017, PIK Group was the largest developer
in Russia in terms of volume of ongoing construction works, with 4.1mn m², according to data from
the National Association of Housing Developers (NOZA).
Source: EMIS Company Database, NOZA
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An EMIS Insights Industry Report03 COMPETITIVE LANDSCAPE CONTENTS
Top M&A Deals
Top 20 M&A and ECM Deals in Russia’s Real Estate and Construction Sector,
2017 – April 2019
Deal Value,
Date Target Company Deal Type Buyer Country of Buyer Stake, %
USD mn
Nov-2018 Suvorov Plaza Acquisition Sberbank Russia 828 100
Feb-2019 Lider-Invest Acquisition Etalon Group Ltd Russia 229.14 51
Feb-2019 Etalon Group Ltd Minority Stake Sistema PJSFC Russia 226.6 25
PPF Real Estate Holding BV; PPF Czech Republic;
Oct-2018 Nevsky Centre Acquisition 197.9 100
Group NV Netherlands
54 former telephone Biznes-Nedvizhimost; Sistema
Feb-2019 Acquisition Russia 197.15 100
exchange buildings PJSFC
157.69
Jul-2018 Gorkapstroy-Garant Acquisition Artur Markaryan – private investor Russia 100
(EMIS est.)
Otkritie Financial Corporation
Oct-2018 Legion I Business Centre Acquisition Russia 150.87 100
Bank
Warehouse area at Sever Estate; Raven Property United Kingdom;
Jul-2018 Acquisition 123.56 100
Logistics Park Sever Group Ltd Russia
Institutional investor(s); Private
Apr-2019 LSR Group SPO n/a 88.59 9.7
investor(s)
Real estate project near
Aug-2018 Acquisition Sergey Gordeev – private investor Russia 86.95 100
Paveletsky Railway Station
MC Manezhnaya
Aug-2018 Minority Stake Sberbank Investments; Sberbank Russia 84.85 9.9
Ploshchad
Nov-2018 Murmansk Mall Acquisition Kiprey Russia 71.51 100
Jul-2018 Glavstroy-SPb Minority Stake Yury Chechikhin – private investor Russia 63.2 9
Oct-2018 Dekart Business Centre Acquisition Mobile TeleSystems OJSC Russia 62.72 100
KomsoMall shopping and
Jul-2018 Acquisition Inprom Estate Russia 48.19 100
entertainment centre
Jul-2018 Avion Business Centre Acquisition Alfa-Bank Russia 43.45 100
Warehouse complex in
Dec-2018 Acquisition Raven Property Group Ltd United Kingdom 41.81 100
Nizhny Novgorod
Beskudnikovo development
Jul-2018 Acquisition Seven Suns Development Russia 35.09 100
project
Aug-2018 FM Logistic Industrial Park Acquisition FM Logistic Corporate SAS France 33.73 100
Biznesprof; Tatyana Pimenova –
Jul-2018 Sinop Business Centre Acquisition Russia 32.2 100
private investor
Source: EMIS DealWatch
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M&A Activity, 2017 – April 2019
Number and Value of Deals Number of Deals by Deal Value, USD
29 50.1-100mn; 100.1-
26 9.2% 500mn;
23 10.8%
22 22
20
18
500.1-1000;
5,113 12 13 1.5%
4,261
1,570 1,476 Undisclosed;
927 615 1,045 887 823 18.5%
0-50mn;
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Jan-Apr 60.0%
2017 2018 2019
Value of Deals, USD mn Number of Deals
Number of Deals by Deal Type Number of Deals by Region
of Investors
Minority
stake
purchase
16.8%
Russia EU 5.5%
Privatisation
89.5%
Acquisition 5.9%
74.1%
Share buy-back Asia 3.3%
1.6%
United States
1.7%
SPO 1.6%
Source: EMIS DealWatch
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 31
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An EMIS Insights Industry Report CONTENTS
04
COMPANIES
IN FOCUS
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Copyright © 2019 EMIS, all rights reserved. 3204 COMPANIES IN FOCUS CONTENTS
Mostotrest
Highlights Consolidated Income Statement, RUB bn
Mostotrest, founded in 1930, is a leading player in
the Russian infrastructure construction market. 10.3%
Its main activities include the construction of
roads and bridges, railway infrastructure, airfields
and airports, seaports and waterway 7.2%
infrastructure. 6.5%
207.8
206.3
The company also performs toll-road operation
175.2
activities and is the concession holder for the toll
section of the M-11 Moscow–St Petersburg
18.1
15.0
13.5
highway between Kilometre 15 and Kilometre 58.
5.0
3.0
1.7
JSC TFK-Finance, controlled by Arkady Rotenberg,
owns 94.2% of the share capital of Mostotrest. 2016 2017 2018
Net Revenues EBITDA
Mostotrest’s net profits in 2018 nearly halved Net Pr ofit EBITDA Margin
from the previous year. The company attributed
the fall to a significant increase in financial
expenses associated with the large amount of Consolidated Balance Sheet, RUB mn
debt Mostotrest raised to co-finance long-term
investment contracts and finance working capital 1.05
for a number of large-scale projects with
accelerated rates of completion work.
Mostotrest was involved in the construction of
the Kerch Strait bridge linking Russia with the
158.6
146.1
0.45
Crimean Peninsula. The 19km Kerch Strait bridge
158.8
was opened for cars and buses in May. It contains
26.6
24.8
24.1
15.8
a four-lane highway and two lines of railway 0.16
6.1
2.9
tracks that are still under construction. The USD
3bn Russian construction project began in 2016. 2016 2017 2018
In July 2018, the European Commission decided to Total Assets Shareholders' Equity
Net Debt Net Debt/EBITDA
add Mostotrest to its sanctions list, along with
five other Russian companies that were involved
in the project.
Source: Company Data, Radio Free Europe
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Mostotrest (cont’d)
Backlog by Business Segment, end-2018 Key Backlog Additions in 2018
Services Value,
Project
41% RUB bn
Moscow Underground Sokolnicheskaya Line Salaryevo –
34.5
Stolbovo section
Northwest Throughway: Nizhniye Mnevniki Street – Marshall
Construction of 23.2
Zhukov Avenue Road
Construction of Airports and
Bridges and Airfields 5% Northwest Throughway: Nizhniye Mnevniki Street – Marshall
Highways 53% 9.4
Construction of Zhukov Avenue Road
Other Facilities 1%
Construction of Traffic Interchange at MRR/Volokolamskoye
5.1
Avenue Intersection
Backlog by Customer Type, end-2018 Backlog by Geography, end-2018
Regional and Municipal
Authorities 24% Southern Federal
District 7%
Central Far Eastern
Federal State Federal Federal District
Agencies 17% District 77% 4%
Private
State Customers 6% Other 12%
Corporations
53%
Comments
In 2018, Mostotrest expanded its backlog in the construction segment, with projects totalling RUB
102.1bn, mostly driven by large-scale projects in Moscow. New projects in the service segment totalled
RUB 90.1bn. With a 53% share, road and bridge construction projects continue to prevail in the
Group’s backlog. At the same time, due to completion of construction and entry into the operational
stage of several projects under long-term investment agreements (LTIAs), the share of the service
segment increased from 13% in 2017 to 41% in 2018. At the end of 2018, Mostotrest’s key operating
region was the Central Federal District of Russia, which accounted for 77% of the backlog. Due to the
final stage of construction of the Kerch Bridge, the share of the Southern Federal District in the
Group’s backlog decreased to 7% at the end of 2018.
Source: Company Data
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Mostotrest (cont’d)
Key Commissioned Projects in 2018
In 2018, Mostotrest completed and commissioned a total of RUB 127.3bn
11 projects with a total length of constructed, reconstructed M-11 “Moscow — St.
and repaired roads and bridges of 323.1 km, as well as Petersburg” Highway
Section 6 (km 334 – km 543)
0.4mn m2 of pavement built at airports.
construction
RUB 63.1bn RUB 122.5bn
Kerch Bridge
M-11 “Moscow —
Construction
St. Petersburg” Highway
(Road Part)
RUB 55.4bn Section 1 (km 58 – km 97)
Construction of 4th Moscow construction
Ring Road (Entuziastov
Avenue — Izmailovskoye
Avenue)
RUB 20.8bn
Construction Of M-11 “Moscow
— St. Petersburg” Highway
Festivalnaya Street —
Dmitrovskoye Avenue Section
(Northern Throughway)
Revenue Structure, RUB bn
12.7 14.8
11.4 2.6
12.1
18.6 19.2
13.0 10.6
4.1 18.8
9.9
162.5 168.7
115.6 130.6
2015 2016 2017 2018
Construction of Br idges and Highways Construction of Airfields and Airports Other Facilities Maintenance and Repair of Roads
Source: Company Data
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 35
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LSR Group
Highlights Consolidated Income Statement, RUB bn
LSR Group was established in 1993 and is
18.7%
currently one of the main players in the sector.
Its business areas include the production of
building materials, real estate development and
construction activity. The company’s shares are 17.2%
listed in Moscow and London but the largest
138.5
146.4
shareholder is the Russian businessman Andrei
Molchanov with a 60% stake. 16.0%
98.1
27.4
22.1
LSR Group owns pre-fabricated concrete factories
16.9
16.2
15.9
9.2
in the cities of St Petersburg and Yekaterinburg. It
claims to be the largest producer of reinforced
concrete, sand and ceramic bricks in Russia. In 2016 2017 2018
April 2018, LSR sold its concrete factory in Net Revenues EBITDA
Net Pr ofit EBITDA Margin
Moscow for an undisclosed amount.
In 2018, the group’s sales rose by 5.7% y/y to RUB
146.4bn as new contract sales went up by 44% y/y Consolidated Balance Sheet, RUB bn
to 1.0mn m², translating into RUB 93bn. According
to the company, contract sales were also
underpinned by record low mortgage rates in the 1.93
first half of the year, as well as consumer 1.69
expectations for future price increases in light of
recent regulatory changes.
251.9
251.6
1.06
259.5
A consolidated EBITDA margin improved to 18.7%
of sales, from 16% in 2017. In value terms, EBITDA
42.7
28.5
29.0
rose by 24% y/y to RUB 27.4bn. However, net
84.4
77.7
68.5
profit increased by a mere 2.3% y/y to RUB 16.2bn.
2016 2017 2018
Total Assets Shareholders' Equity
Net Debt Net Debt/EBITDA
Source: Company Data
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LSR Group (cont’d)
Sales Volume, Building Materials
2014 2015 2016 2017 2018
Sand, thou m3 8,396 8,144 8,742 7,564 10,699
Crushed Granite, thou m3 7,270 5,374 6,312 5,975 7,538
Ready-mix Concrete, thou m3 1,612 1,027 879 1,052 1,135
Brick, mln units 334 348 317 290 300
Aerated Concrete, thou m3 1,355 1,304 1,385 1,509 1418
Reinforced Concrete, thou m3 319 283 256 234 160
Area Transferred to Customers, thou m² Real Estate Development, New Contract
Sales
925 924 1,008
881 90.0
85.3
154 137 920
140
70.6
179 211 182 611 65.3
681
528 640
54.9
129
19
562 560 605
380
2015 2016 2017 2018
2014 2015 2016 2017 2018
St. Peter sburg Moscow Ekaterinbur g Total Volume, thou m² Value, RUB bn
Source: Company Data
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Etalon Group
Highlights Consolidated Income Statement, RUB bn
Etalon Group is one of the leading real estate
development and construction companies in the
21.0%
country. Founded in 1987, the group is mainly
engaged in housing projects in and around
Moscow and St Petersburg. 14.9%
72.3
Etalon focuses on middle class residential real
70.6
estate in Moscow and St Petersburg. The
7.9%
49.0
company claims to be the largest real estate
14.8
developer by number of projects offered on the
7.9
7.3
5.7
4.9
Moscow market and the third largest on the St
0.04
Petersburg market. Etalon is also the second
largest company in Moscow in terms of volumes 2016 2017 2018
under construction and the third largest in St Net Revenues EBITDA
Net Pr ofit EBITDA Margin
Petersburg.
Viacheslav Zarenkov and Galina Zarenkova hold
30.7% of the company’s shares, and Baring Vostok Consolidated Balance Sheet, RUB bn
Funds 5.7%, while the company’s free-float as of
2018 was 61.9%. Etalon Group Limited’s GDRs 1.07
have been traded on the main market of the
London Stock Exchange since 2011. 0.66
The group’s new contract sales came in at
134.8
130.6
114.1
628,000m² in 2018, up from 512,000m² in 2017.
The average sale price went up by 11.5% y/y to
62.8
60.1
58.2
9.7
7.8
RUB 109,400 per m². In 2018, total consolidated
-0.39
revenues increased by 2.3% y/y to RUB 72.3bn but
-2.2
the company’s EBITDA margin shrank to 7.9% 2016 2017 2018
from 21% in 2017.
Total Assets Shareholders' Equity
Net Debt Net Debt/EBITDA
Source: Company Data
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Etalon Group (cont’d)
New Residential Sales Average Price, RUB/m²
109,400
68.7
95,650 98,094
91,057
50.2
47.4
628
35.1
512
496
385
2015 2016 2017 2018 2015 2016 2017 2018
New sales, thou m² New sales, RUB bn
Number of Signed New Contracts Shareholding Structure, 2018
12,312 Sistema
PJSFC
25.0%
9,916
9,590
7,841 Baring
Vostok 5.7%
Free Float
61.9% Zarenkov
family 5.7%
Management
1.7%
2015 2016 2017 2018
Source: Company Data
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 39
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Velesstroy
Highlights Income Statement, RUB bn
Velesstroy is one of the leading companies
implementing oil and gas and electric power
sector projects, as well as industrial and civil 5.0%
works. The majority shareholder in the company
is Cyprus-based Waveform Investments Ltd,
holding a 99% stake.
2.9%
Velesstroy was established in 1996, when the
75.1
73.8
88.2
company’s main business related to full-scale 2.0%
corrosion protection treatment of structural steel.
In 2001, the company started to engage in
3.7
2.6
2.2
1.7
1.5
1.1
installation and welding work in oil pipeline
construction. 2015 2016 2017
Net Revenues EBIT
The company participated in the first and second Net Pr ofit EBIT Margin
phases (ESPO-1 and ESPO-2) of the construction of
the Eastern Siberia-Pacific Ocean (ESPO) oil
pipeline. It also took part in both Phase 1 and Balance Sheet, RUB bn
Phase 2 of the Baltic Pipeline System project.
Other projects include the Zapolyarie-Purpe
3.60
Pipeline System; the CPC Expansion Project (a
follow-up to the Caspian Pipeline Consortium
project); and construction of the LNG Plant and of
LNG Tanks within the framework of the YAMAL
55.0
LNG Project. In April 2019, the company
58.7
58.5
announced that works at the Yamal LNG had been
conducted ahead of schedule. In July 2017, the 0.81
0.68
company signed a contract for the construction
4.6
5.4
2.1
8.5
2.5
6.8
and installation of cryogenic gas-separation units
at the Amur Gas Processing Plant (GPP) in the 2015 2016 2017
Total Assets Shareholders' Equity
town of Svobodny in Russia’s Far East. The new
Net Debt Net Debt/EBIT
GPP will become one of the world's largest
natural-gas processing plants, according to the
company.
Source: Company Data, EMIS Company Database
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Velesstroy (cont’d)
Major Projects
Project Status Description
Oil pipeline system, intended to be used for Russian regions of Far
East and Asian-Pacific Region supply. It includes construction of a
Pipeline System ESPO-1 Completed pipeline from Tayshet to Skovorodino, passing through the
Amurskaya and Irkutskaya regions including Yakutiya. The mainline
length is almost 2,700 km and its capacity is 30mn tonnes a year.
Installation of 2,000km of oil pipeline in Khabarovsk and Primorsk
Krai, Amur and Evreyskaya autonomous region with the aim of
Pipeline system ESPO-2 Under Construction
increasing crude oil export to Japan and South Korea by 30mn
tonnes a year.
A network of pipelines with a total length of nearly 1,200 km,
Baltic Pipeline System I and II Completed connecting the Druzhba oil pipeline and seaports on the Russian
coast of the Baltic Sea.
Consortium and a pipeline to transport Caspian oil from the Tengiz
Caspian Pipeline Consortium Completed field to the Novorossiysk-2 Marine Terminal on Russia's Black Sea
coast.
VES ESPO Power Station Completed Part of the ESPO Pipeline project.
The LNG plant has a capacity of 16.5mn tonnes of LNG per year
South Tambey LNG Plant Under Construction and is based at the South Tambey field on the shores of the Gulf of
Ob.
Among the largest projects that Velesstroy has been awarded is the construction of the ESPO-2 oil
pipeline. The company worked on the construction of pumping stations (PSs) related to ESPO-2, as
well as on infrastructure development, installation of power-generation facilities – including power
equipment and fire protection systems – sewer and process pipelines and general site improvement
works. Velesstroy also participated in the Baltic Pipeline System Phase 1 (BPS-1) project, being
involved in the expansion of loading capacity and storage tank capacity of SMNP – the Primorsk
Specialised Oil Port – as well as the construction of treatment facilities for it. In 2014, Velesstroy was
awarded a contract by the South Tambey LNG consortium (comprising Technip, JGC, and Chiyoda, as
well as Velesstroy itself) for construction of one of the biggest LNG plants in the world. With an
annual capacity of about 16.5mn tonnes, this is based directly in the South Tambey field on the shores
of the Gulf of Ob.
Source: Company Data
RUSSIA REAL ESTATE & CONSTRUCTION SECTOR 2019/2020 41
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