VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #1514/01 3111346
ZNR UUUUU ZZH
R 071346Z NOV 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 1736
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0018

UNCLAS BELGRADE 001514 
 
SIPDIS 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EINV SR
SUBJECT: SERBIA-$520 MILLION BANKRUPTCY AUCTION 
HIGHLIGHTS INVESTOR INTEREST IN THE SERBIAN 
MARKET 
 
REF:  BELGRADE 1396 
 
SUMMARY 
------- 
 
¶1.  On October 29 Verano Motors bought bankrupt 
department store chain "Robne Kuce Beograd" for 
$520 million in the fifth largest privatization 
deal in Serbia.  Verano's offer prevailed over 
nine other bidders including two U.S. investment 
firms and well-known Serbian business tycoons. 
The purchase gives Verano 38 stores and 
facilities located on prime real estate in 
Serbia.  END SUMMARY. 
 
THE SEARS & ROEBUCK'S OF SERBIA SELLS FOR $520 
MILLION 
--------------------------------------------- ---- 
--------- 
 
¶2.  On October 29, Econoff attended the hotly 
contested public auction in which Verano Motors 
bought department store chain "Robne Kuce 
Beograd" (RKB) for $520 million, making it the 
fifth largest privatization deal in Serbia's 
history.  Verano Motors, a Peugeot car 
distributor, is finalizing financial backing from 
Greek firm Marfin Investment Group.  Verano out 
bid nine other participants, including U.S. firms 
Merrill Lynch and NCH Capital Partners.  The 
purchase gives Verano 38 stores and facilities 
across Serbia and includes several properties in 
Montenegro, totaling almost 240,000 square meters 
of premium real estate.  RKB stores are located 
in city centers across Serbia - including in 
Belgrade's pedestrian zone and fashion centers - 
making them some of the most attractive real 
estate in the country.  Radomir Zivanic, owner of 
Verano, announced his plans to invest an 
additional $101 million into the chain to restore 
RKB to its former glory. 
 
The Auction Process 
------------------- 
 
¶3.  The Privatization Agency offered RKB, once 
the largest chain store in the former Yugoslavia 
and third largest in Europe, at a starting price 
of $200 million. The chain went into bankruptcy 
in 2002 after suffering through the high 
inflationary period of the mid-1990s with little 
government help. 
 
¶4.  The lead up to the RKB auction was not as 
smooth as it could have been.  On November 1, 
Econoff met with advisors to the Privatization 
Agency (PA), Hugo Green and Wojtek Mlodziejewski. 
According to Green and Mlodziejewski, the PA 
provided RKB's financial and business data two 
weeks late for investors' due diligence.  Most of 
the information was only available in the Serbian 
language.  In addition, gaining access to company 
documents in the data center was time limited, 
further hampering potential investors' ability to 
analyze the value of the company.  Only 10 
bidders, out of the more than 40 who purchased 
tender documents, posted the $58 million bond to 
participate in the auction.  Most bidders were 
made up of partnerships between international and 
domestic investors, including the usual cadre of 
Serbian tycoons who hid behind company names 
registered abroad. 
 
THE MYSTERY BEHIND BIDDERS 
-------------------------- 
 
¶5.  According to real estate consultant Vladimir 
Mrvic, few details are known about the new owner 
of RKB, Radomir Zivanic.  Nicknamed 'The Boss,' 
Zivanic is known as a street tough, no nonsense, 
savvy tycoon who dabbles in car sales and real 
estate.  His life before opening his first 
dealership is a mystery as are his dealings while 
living in Greece 2000-2003.  According to Mrvic, 
Zivanic made his fortune during the Milosevic era 
smuggling contraband.  Today he is the sole 
distributor of Peugeot cars in Serbia.  Zivanic 
entered the real estate business about six years 
ago and now has several attractive properties 
 
 
around Belgrade, including land downtown on which 
he is building the Zira Shopping Mall. 
 
¶6.  Bidding entity names were intentionally 
obscure and were not released prior to the 
auction.  It is still unknown who is really 
behind many of the bidders.  There was no doubt, 
however, that many of Serbia's powerful tycoons 
discreetly partnered with international and local 
investors in an attempt to circumvent anti-trust 
laws and tax obligations.  A little digging 
pulled up Delta Holdings giant Miroslov Miskovic 
bidding via Balkans Real Estate.  Miodrag Kostic 
(who made his money in sugar) and Filip Zepter 
(among the richest of Serbia's tycoons) partnered 
under bidding entity Aida Asset Association and 
Home Art and Sales Services.  Still unaccounted 
for, but believed to have participated, is Milan 
Beko. (See Reftel for information on Serbian 
tycoons.) 
 
MORE THAN JUST A DEPARTMENT STORE 
--------------------------------- 
 
¶7.  Urban real estate in Serbia is expensive due 
to a dearth of supply, bottlenecks in the 
bureaucracy, and land restitution claims. 
Selling and leasing individual RKB properties 
could yield high profits for Zivanic, which would 
explain RKB's high selling price.  Besides being 
a potentially lucrative investment, Zivanic 
attaches sentimental value with his purchase, 
stating that Verano "...will return glory to 
Robne Kuce Beograd.  I am Belgradian and I am 
personally behind this business.  I wish to work 
in Serbia and I wish for people to trust me." 
 
COMMENT 
------- 
 
¶7.  The sale of RKB was significant for many 
reasons.  The government earned a substantial sum 
from the sale, highlighting the benefits of 
moving more companies through the bankruptcy and 
privatization process.  It was the first time a 
bankrupt company was privatized through a public 
auction.  It is also the first time a domestic 
investor has acquired a company of this 
magnitude.  The purchase is also one of the few 
major challenges to Delta Holdings' significant 
holdings on the retail industry.  With additional 
investment and financial backing, Verano owner 
Zivanic may realize his goal of bringing prestige 
back to the debt-ridden RKB as well as bringing 
greater competition to the market.  End Comment. 
 
MUNTER