PIK Construction Plummets by 50%

PIK Group, one of the country's largest real estate developers, said Tuesday that it finished only 813,000 square meters of housing in 2008, almost 50 percent less than the 1.54 million square meters it completed a year earlier. The country's developers have been among the hardest-hit sectors in the financial crisis, with Moscow's property market coming to a near-standstill as builders have trouble financing new projects and sales of finished apartments plummet. In Moscow, it completed only 219,000 square meters last year, down more than half from 528,000 square meters in 2007, PIK said in a statement. New housing completed in the Moscow region and other Russian regions fell dramatically as well. The company's regional development program has been temporarily frozen as it devotes all of its resources toward restructuring debt, the company said. It said it was in debt restructuring talks with the "majority" of its creditors. The cut in production represents a drastic fall for a company whose owners, Yury Zhukov and Kirill Pisarev, topped Forbes' 2008 list of wealthy Russian real estate developers, with a net worth of $6.1 billion each. The company's $1.85 billion London IPO in 2006 was the biggest public offering ever in the European real estate sector. Now, the developers' fortunes, which were based in part on the high capitalization of their public companies, have been virtually erased, with PIK's shares down 98 percent from their 2008 high. Last fall, the company was forced to turn to Vneshekonombank for a $260 million loan to cover short-term obligations, and the government-controlled development bank now has a seat on the company's board of directors. The company said the steep drop in production was caused by a meltdown in credit markets in the last quarter of the year, when many projects are traditionally completed. PIK also said 2009 would be a difficult year for the company and the real estate industry in general. It will outline its 2009 strategy in May, when it reports annual results, the statement said. PIK's shares rose more than 20 percent in London trading, but analysts said the penny stock's rally had little to do with the news. "There's really not much explanation for the rise," said Yekaterina Krasnenko, an analyst at UralSib. "It's likely that this is not the last piece of bad news the company will announce."