Real Estate

Sergei Gordeev: the Russian property tycoon betting on prefab blocks

Newsletter: Europe Express

A Russian housing boom stoked by Kremlin-backed mortgage discounts and an exodus from dilapidated Soviet-era city-centre apartments has turned Sergei Gordeev’s PIK into one of Europe’s biggest property developers.

After the company built 40,000 housing units last year, its stock price is up by more than 100 per cent in 2021, propelling its market capitalisation to almost $12bn and the personal wealth of its majority owner to more than $8bn.

Now, using money raised in a $493m secondary public offering in Moscow on Friday, PIK is looking to upend the housing sector with a push into prefabricated blocks it says will take just two weeks to build.

Gordeev says Units, PIK’s new modular construction division, will dramatically reduce the carbon footprint from concrete, cement and central heating in conventional housebuilding.

The conveyor belt at its first factory in south-west Moscow resembles that of a car plant. Gordeev believes that using a factory-based, robot-built model, housing construction costs will be cut by 30 per cent.

“Young people won’t be working as labourers on construction sites in 10 years — it’s a fundamental technological shift,” Gordeev told the Financial Times. “Construction won’t be handmade and you won’t have all those people on the building site, because all buildings will be manufactured in factories and built in a matter of days.”

Sergei Gordeev
Sergei Gordeev says PIK’s new modular construction division, Units, will reduce the carbon footprint from concrete, cement and central heating in conventional housebuilding © Elena Chernyshova/Bloomberg

Though PIK has yet to build its first apartment block with the technology, Mikhail Ganelin, an analyst at Aton, said Units could “revolutionise housing construction” and predicted that PIK could be valued at multiples similar to online banking pioneer Tinkoff, whose stock price has grown more than threefold over the past year.

Though it slightly missed its $500m target and the stock price subsequently slid 12 per cent, Friday’s SPO still made PIK one of the most valuable Russian companies to sell shares on public markets since a resurgence in offerings late last year.

It was oversubscribed several times over, with 40 per cent of the stock bought by Russian investors and 25 by US-based investors, according to Boris Kvasov, head of equity capital markets at VTB Capital, one of the investment banks co-ordinating the deal.

Demand for Russian stocks has risen as institutional investors seek returns in emerging markets and retail traders flood the Moscow exchange, looking for more value for their savings while historically low interest rates reduce the attraction of bank deposits.

Renaissance Insurance and IT provider Softline filed for listings last week, while agricultural producer Rusagro held an SPO on Thursday.

The PIK and Rusagro deals “were closed with a discount of just under 9 per cent to their trading price prior to deal launch, both attracted a large amount of high-quality demand and the order books were oversubscribed several times, which allowed them to increase the initial offer volume”, Kvasov said.

Construction workers at a PIK residential development in Moscow
PIK is one of the most valuable Russian companies to sell shares on public markets since a resurgence in offerings late last year © Andrey Rudakov/Bloomberg

PIK said it would spend Rbs11.6bn ($159m) buying back some of its shares from VTB, which has a 23 per cent stake in the company, and spend the rest on “general corporate purposes . . . including debt repayment and business expansion”.

Units is planning to ramp its capacity for the new model of houses up to nearly 2m square metres a year by the end of 2023 through the opening of several new factories, including one in the Philippines.

PIK is also expanding Kvarta, an online real estate marketplace that allows customers to buy, sell and rent homes directly from the company. PIK expects Kvarta to generate Rbs24bn in revenue this year and is considering spinning it and Units off in separate IPOs.

“There are so many things you can do with your time. Why spend it on brokers and agents?” Gordeev said.

Some bankers have warned that the housing boom may fade after officials began to wind down a Kremlin-backed discounted mortgage scheme that pushed banks to underwrite a record Rbs4.4tn last year, an increase of 50 per cent on 2019.

Russia’s central bank governor Elvira Nabiullina said this month that the country had “practically reached the limit of mortgage growth” compared with real incomes, which are down 11 per cent since 2013. House prices per square metre rose 39 per cent last year, according to the central bank — after growing only 33 per cent in the six previous years combined.

The Audit Chamber, a watchdog that monitors government spending, said recently that the rapid growth in mortgages and house prices “could create a financial bubble that could seriously harm the stability of the financial sector and real incomes”.

But Gordeev insists PIK’s future is in tech, where companies such as Tesla are valued at multiples traditional businesses could only dream of.

“Development isn’t a tech business. It’s the art of buying land and thinking of the right thing to put there, then getting government approval and building it,” Gordeev said. “What we’re betting on has huge scalability and huge potential for inventing new technology, products, and services that can really change things.”


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