This Russion Gamble Is Not Just A Side Bet

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Russian Billionaires Gamble on Golf as Crisis Ravages Fortunes

By Ilya Khrennikov
Bloomberg.com

Oleg Deripaska isn't letting $20 billion of debt handicap his golf game.

Like fellow Russian billionaires Roman Abramovich and Vladimir Potanin, the 41-year-old golf enthusiast amassed, and then lost billions of dollars on commodities. They now are turning to their hobbies as one way to help rebuild fortunes ravaged by Russia's worst economic decline on record.

Golf, snubbed by communists as a sport for capitalists, wasn't played in Russia until the twilight of the Soviet Union and even now the country has just three 18-hole courses, one owned by Deripaska. At least 40 more are either being built or funded as investors pour $500 million into the sport this year alone, according to the Russian Golf Association.

"Russia is now one of the hottest spots for golf development," said Andrea Sartori, the Budapest-based head of KPMG International's Golf Advisory Practice for Europe, the Middle East and Africa. "Golf is still perceived as an elitist sport and current supply is mainly tailored to the wealthy Russian upper class."

The golf association reckons the number of regular Russian golfers will swell to 100,000 by 2014 from 16,000 now and 500 in 2003 as more courses open and it gets cheaper to play.

In Scotland, where the sport was started in the Middle Ages, the national golf union covers 630 clubs and 260,000 players in a country with roughly half the population of Moscow.

$300,000 Fees

Deripaska opened the Tseleevo golf, ski and polo resort in December. The complex is 50 kilometers (31 miles) north of Moscow, the capital, and its centerpiece, an 18-hole course designed by six-time U.S. Masters winner Jack Nicklaus, cost $30 million. Membership fees are $300,000.

The billionaire completed the project after losing $25 billion of his wealth by Forbes magazine's count, forcing him to cede stakes in Hochtief AG, Germany's biggest construction company, and Canadian car-parts maker Magna International Inc.

Three months after Tseleevo opened, Deripaska's United Co. Rusal, the world's largest aluminum producer, was forced to freeze payments on $7.4 billion of debt to more than 70 international banks under an agreement that expires Sep. 18. Deripaska's holding company, Basic Element, said in April that its total debt exceeded $20 billion.

"We consider golf to be a promising industry in Russia," said Vadim Prasov, manager of Deripaska's golf business. Tseleevo is forecast to "pay off" in six to 10 years, he said.

Declining Economy

That's not to say the record 10.9 percent economic contraction in the second quarter hasn't had an effect.

The Moscow Open, the only Russian event on the PGA European Tour, was canceled in the summer after lead sponsor ZAO Inteco, the development company of Moscow Mayor Yuri Luzhkov's billionaire wife Yelena Baturina, backed out.

The country's biggest golf investor may be lawmaker Andrei Komarov, the main shareholder of pipemaker ChTPZ Group and one of 55 Russians on Forbes's 2008 list of billionaires who didn't make the cut this year.

The 42-year-old is plowing ahead with a $600 million project to build a chain of 18-hole courses in three regions. ChTPZ, by contrast, fired 25 percent of its workforce, or about 5,000 people, last year as demand for its products slumped.

"We haven't cut planned expenditures because of the crisis," though work has slowed at golf projects near St. Petersburg and Yekaterinburg, said Oleg Kustikov, chief executive officer at Protcion, Komarov's development company.

Valuable Property

An "ambitious" course in Russia costs at least $100 million, including real estate, Kustikov said in an interview in the ornate clubhouse at Pestovo, Protcion's 18-hole complex 30 kilometers north of Moscow. Pestovo, which opened in 2007, cost $120 million and increased the value of surrounding property as much as 20-fold, Kustikov said.

Protcion bought the land around Pestovo for about $50,000 a hectare (2.5 acres) four years ago and expects to sell some of it for $1 million per hectare after the complex is built.

Potanin, who lost $20 billion according to Forbes, is building the PGA National course 100 kilometers northwest of Moscow, where the Russian national team will be based. PGA National is on schedule and will be completed in 2012, Potanin's OAO Open Investments said in an e-mailed statement.

Abramovich, who lost $16 billion on his investments, is building a golf complex two kilometers from Moscow's outer ring road, making it the closest 18-hole course to the capital, according to John Mann, spokesman for Millhouse Capital, the Chelsea soccer club owner's holding company.

Olympic Push

While most golf projects in Russia start with the course and then add marketable properties, luxury-home builder Aras Agalarov, another Russian stricken from the Forbes billionaire list, is doing the opposite. Agalarov decided last year to build a course at his Agalarov Estates northwest of Moscow, where homes cost as much as $20 million.

How fast the golf industry develops in Russia may depend on whether the International Olympic Committee includes the sport in its quadrennial event starting in 2016, said Yevgeny Kafelnikov, the former top-ranked tennis player who is now one of Russia's best golfers, with a handicap of two.

The government will have to fund the development of golf for it to become an Olympic event, said Kafelnikov, who's a member of Deripaska's Tseleevo club. The IOC's Executive Board has recommended that golf and rugby sevens be added to the games. A final decision will be made next month in Copenhagen.

"I am very excited," Kafelnikov said by phone from his Moscow home. "I can't wait for the October decision."

Source: Bloomberg.com
To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net