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Viewing cable 09BELGRADE429, SERBIA: DELTA'S FINANCIAL WOES

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Reference ID Created Released Classification Origin
09BELGRADE429 2009-05-19 11:31 2011-08-26 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Belgrade
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #0429/01 1391131
ZNR UUUUU ZZH
R 191131Z MAY 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 1299
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
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