VZCZCXRO3688
RR RUEHBW
DE RUEHBW #0335/01 0951427
ZNR UUUUU ZZH
R 041427Z APR 08
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0134
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE 0203

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