Irish Tycoons Target Eastern Promise

Views on BG | August 20, 2006, Sunday // 00:00

By Ian Kehoe
Sunday Business Post, Ireland

"Eastern Europe", said Newry-based property tycoon Gerard O'Hare, ��is like Ireland was 40 years ago".

"Eastern Europe", said Newry-based property tycoon Gerard O'Hare, ��is like Ireland was 40 years ago. We want to be there when they get their own Celtic Tiger."

O'Hare is one of a host of Irish heavyweights ploughing cash into the once-fringe markets of the old Soviet bloc.

From property to airports and banks to factories, Ireland's wealthy elites is exploiting opportunities in countries such as Poland, Slovakia and the Czech Republic.

This follows a decade of snapping up commercial property in Britain. According to a survey by CB Richard Ellis, Irish investment in central and eastern Europe is expected to more than double this year from €300 million last year.

Billionaire Irish businessman Sean Quinn recently revealed that his company was abandoning some non-core investments at home to build an eastern European property portfolio.

Last week, Quinn paid €45 million for the Sheraton Hotel Krakow in Poland. Other prominent Irish figures to be lured to eastern Europe include financier Derek Quinlan, developer Paddy Kelly and telecoms entrepreneur Denis O'Brien.

Enterprise Ireland, the state development agency, estimates there are now more than 150 Irish companies trading in the ten EU accession states. Irish investment has created 14,000 jobs in Poland and contributes more than €70million a year to Hungary's economy.

Few Irish businessmen, however, have embraced eastern Europe as enthusiastically much as O'Hare and his company, Parker Green. The Co Down company is working on large developments in the Czech Republic, Poland, Hungary, Croatia and Romania.

Two months ago, it announced it had acquired a site in Trnava in Slovakia, where it intends to construct a 259-bedroom hotel.

It is also planning a cinema and a leisure centre elsewhere in the country.Parker Green has a team of five people in its Bratislava office, who scour eastern Europe for new opportunities. According to O'Hare, the company will announce further large-scale developments over the coming year.

��We are using Bratislava as a base for our operations over there," said O'Hare, who pointed out that the Slovak capital was within striking distance of all major cities in eastern Europe.

��The markets in central and eastern Europe are becoming more stable, particularly those which have joined the European Union or which wants to join. It is a much safer investment than it used to be.

"While the possibilities are enormous, O'Hare said certain aspects posed problems, specifically in the area of land title.As a result of 50 years of communism and internal strife, there is a lack of clarity of ownership for buildings and land. O'Hare said it was quite common for a person to emerge at the last moment staking a claim.

��Sometimes you just have to walk away," he said.Furthermore, O'Hare said the eastern economies were still immature and could be affected by a change of government or a dip in the performance of a nearby country.For example, Poland suffered significantly when the German economy dipped at the start of this century.

��Having said that, there is a lot of room for growth and a lot of possibilities. It is the place to be at the moment," O'Hare said.

Not surprisingly, Irish investment in eastern Europe has mostly comprised property plays. Countries like Poland and Romania are a chessboard of empty buildings and office blocks, and an increasing number of developers want a cut of the action.

For example, Quinlan Private, the Irish investment firm headed by Derek Quinlan, competed against just a couple of other bidders when it bought two Warsaw office buildings in 2001. Recently, it had to bid against more than a dozen others to buy a 50 per cent stake in a Krakow shopping centre for €64 million.

Quinlan has been an active investor across the Baltic states and beyond. He has buildings in Hungary and the Czech Republic where, in addition to commercial developments, he owns the Budapest and Prague Four Seasons hotels.Ballymore Properties, the Sean Mulryan-owned giant, has pumped more than €100 million into central Europe since the company's first foray into the region a decade ago.

Last August, Ballymore announced it was building a new riverfront district in Bratislava.The group is spending well over €250 million on the development, which will include Slovakia's largest shopping centre.��There are serious opportunities for capital appreciation in eastern Europe. That is what is driving it," said Enda Faughnan, a partner at PricewaterhouseCoopers.Faughnan, who works extensively in property investment, said investors could earn significantly higher rent from eastern European properties than from more mature economies, such as Britain or the United States.

According to analysts, properties in Poland and the Czech Republic are offering yields of between 7 and 9 per cent, much higher than in London and Paris currently. A yield is typically defined as rental income minus expenses, and is a barometer of the strength of the property market.��Most of the Irish property investment has been in the ten accession countries. There has also been a bit of movement into Bulgaria and Romania, and to a lesser extent Turkey," said Faughnan.

He said the countries would become more successful because of foreign investment, and that a large number of multinationals were also investing heavily there.��Obviously, there are risks going into these countries, and the markets can go down as well as up. But the prize on offer for taking the risk is high yields and large capital appreciation."Not all Irish cash is going into property.

A growing number of Irish entrepreneurs are investing in eastern European businesses.Last autumn, financier Dermot Desmond bought one third of Rietumu Banka, Latvia's fourth-biggest bank in terms of assets.Desmond bought 33.1 per cent from a small number of existing shareholders, including one of the bank's founders, Tony Levin.

According to recent reports, the bank plans to expand its operations across eastern Europe and intends to acquire a Russian bank in the near future.Dublin entrepreneur Sean Melly, who sold his previous company TLT Telecom to WorldCom for ВЈ17 million in 1998, has been building a European telecoms network.

His company, Etel, operates in Austria, Poland, Hungary, Slovakia and the Czech Republic.It is forecasting profits of €10 million on revenue of €135 million this year.

In March, the company agreed to buy Austria's largest corporate internet service provider for €30 million to step up its expansion in central Europe.The acquisition of EUNet Internet Services was Etel's 11th purchase.

Melly's introduction to the central European market was through Prague-based Irish entrepreneur Enda O'Coineen, who has been in the Czech market since the early 1990s.O'Coineen's venture capital house, Kilcullen Capital Partners, has invested in a range of industries. Most recently, it bought ZPA CZ Trutnov, a Czech company that develops electricity meters. Kilcullen has stakes in CE Energy Holdings, which is building wind parks in Slovakia, Zeus Faber, a European event management operation, and Sophia Finance, a Bulgarian recruitment business.

Other Irish companies investing in the Czech Republic include the M Ward Group, an Irish logistics business, which employs 400 people; Prime Hide, a Co Galway company that produces cattle hides; and C&F Tooling, a west of Ireland metal company.JFC Manufacturing, the Galway farm equipment manufacturer, employs 25 people in its Warsaw plant, which opened in 1999.

The Polish division is generating annual sales of between €20 million and €25 million and operates as a standalone business.John Concannon, JFC's managing director, said the plant allowed the company to compete successfully in foreign markets, such as Russia, Ukraine and Belarus.

��We could not ask customers in Moscow to fly to Dublin to see our products," said Concannon. '�Now, they can come to Warsaw and have a look at our facility there. They look at what we have there and know we are a big player."

Concannon said the initial €3 million investment was a risk, but the company had benefited strongly from its significant base in the east.��The markets out there are really starting to expand," he said, ��but you have to be careful because there are risks.

��You have to educate yourself on the culture and the climate of the country and make sure you are making the right investment. I spent a lot of time travelling across Poland with a briefcase under my arm before I felt comfortable to open a plant there."

Another Irish company lured east is Horan Keoghan Ryan (HKR), one of Ireland's largest architectural companies.It is in the process of establishing a division in Prague, which will be headed by Milan Urban, a Czech-born architect.

Jerry Ryan, HKR's managing director, said the company's significant work in the region meant a dedicated office was the pragmatic choice.

��There is a huge target market out there," said Ryan. ��As a company, we wanted to have a geographic spread, and eastern Europe made sense.

��There are a lot of construction and development projects being planned, so there is a demand for architects. Prague will give us access to a lot of the new EU accession countries.

"The Irish advance to the east is not limited to private companies.AIB holds a majority of shares in Bank Zachnodni WBK (BZWBK), which formed in 2001 as a merger of two banks. AIB has invested €1 billion in BZWBK.Other listed companies to invest in Poland include CRH, Smurfit, Kerry Group and Kingspan. Kingspan also has a plant in Hradec Kralove in the Czech Republic.

Considering labour and energy costs are, on average, more than 20 per cent cheaper than in Ireland, it is likely that an increasing number of companies will be making more expeditions to eastern Europe.

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