French construction company Vinci is the latest beneficiary as Russia awards numerous contracts in the non-residential sector. The company has been awarded the construction of the new Dynamo stadium in Moscow - a considerable opportunity for Vinci to expand in the Russian market. Vinci's international portfolio has been growing rapidly as that is expected to be the source of future growth for the company.
The contract is estimated in US$2.7bn and was awarded by MC Dynamo - a subsidiary of Russian bank VTB. The project includes the construction of a 27,000-seat football stadium, a multipurpose indoor arena with a capacity for 12,000 seats, a shopping centre, a cinema and underground parking. The new complex will be located 5km north-west of central Moscow and it is expected to be completed by the end of 2017. This stadium is home to the FC Dynamo Moscow - Russia's oldest football club - which guarantees future demand for the venue.
For Russia, this project contributes to the development of the Residential/Non-residential sector which is expected to grow by 4.3% in 2013. Growth in this sector is premised largely on an intensification of construction activity in light of the 2014 Winter Olympics and 2018 FIFA World Cup, which Russia is hosting. In October 2012, the government announced that it will spend in the region of US$19bn on infrastructure projects for the 2018 FIFA World Cup tournament, supporting our view that activity will pick up through 2013 and 2014. These two major sporting events will have a performance enhancing effect on the construction industry ( see 'Consumers And Games Underpin Growth', Feb 21).
|Residential And Non-residential Building Industry Value, RUBbn And Real Growth % y-o-y|
In turn, Vinci is significantly exposed to its domestic market - with France accounting for nearly 63% of the company's revenues in 2012. Vinci has suffered considerably due to the French public spending cuts that have reduced the pipeline of infrastructure projects, prompting the company to look for opportunities abroad. The company's results show that the international segment is the fastest growing for Vinci; low base effects mean that this will remain the case for the quarters to come as the company continues to build its international portfolio. We have long maintained that Vinci has a very solid grounding when looking for opportunities abroad - in terms of expertise, scale, and capital. Yet, it has not been pursuing the option as aggressively as its competitors, since the French market traditionally provided solid business.
The awarding of this contract contributes to Vinci's geographical diversification and opens a door for further expansion in the Russian market. We highlight future opportunities for Vinci in the development of Russia's Far East infrastructure. Russia has carried out a US$32bn programme of investment in the Far East region since 2008. This is an area twice the size of India which has experienced significant demographic decline and underinvestment since the collapse of the USSR. There are, however, major risks when operating in the Russian business environment - corruption, bureaucracy and red tape are at top of the list.