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Despite worries in some parts of Russia’s economy, marquee project continuesDespite stress in the Russian economy, construction continues at the site of the new stadium for the Dynamo Moscow football club in Moscow. PHOTO: VTB ARENA PARK
As a state-controlled Russian financial institution, VTB Bank is one of the targets of Western sanctions stemming from the war in Ukraine.
But you would never know it from the activity level at the site of VTB’s high-profile real-estate development in Moscow, which includes a new stadium for the Dynamo Moscow football club, an entertainment hall and a mixed-use project.
Scores of construction workers are busy at the site of VTB Arena most days. About a half dozen cranes tower above the site and concrete at the field level is being poured.
A wide range of Western businesses continue their involvement in the $1.5 billion development on 80 acres. Hyatt Hotels Corp. has a deal to manage the 298-room hotel on the site. Seattle-based Colliers International has been a consultant on the leisure and entertainment components. The architect of the stadium and arena is Kansas City, Kan.-based Manica Architecture, while Morgan Lewis, a law firm founded in Philadelphia, is providing legal advice.
The participation of these businesses—which is legal—reflects the narrow scope of some of the Western sanctions against Russia. When the U.S. imposes “full blocking sanctions” on a bank or individual, which isn’t the case with Russia, that generally prohibits any U.S. person from doing business with them.
The sanctions imposed against VTB prohibit only transactions that provide new equity or new debt for more than 30 days, according to spokeswoman for the U.S. Treasury Department. “They’re unlike the full blocking sanctions,” she said.
To be sure, the sanctions have been painful for VTB Bank and have put a crimp on its profitability, Andrei Kostin, its chief executive, told The Wall Street Journal earlier this year.
But financing for the arena project was already in place before the sanctions went into effect last year. While the sanctions initially created new delays, confusion and complications, most of these issues have been smoothed out, ccording to Dmitry Kunitsa, Morgan Lewis’ Moscow-based partner.
“Everyone is mindful of the sanctions, everyone is careful and everyone is doing their homework,” he said.A rendering of VTB Arena to be constructed in Moscow. ILLUSTRATION: VTB ARENA PARK
At the same time, the progress being made at VTB Arena and the commercial project named VTB Park show that some high-priority developments are continuing to move forward in Russia despite sanctions and other economic stresses caused by the fall in energy prices and the fall in the ruble. The old arena at the site, which is being partially preserved, was built in 1928 and was one of Moscow’s best known sports venues for years.
“This has huge social importance for our city and for our country,” said Andrey Peregoudov,general director of MC Dynamo Co., the development company controlled by VTB.
VTB never meant to be the stadium’s developer. Rather, it originally was providing debt financing to the Dynamo Sports Society, which planned to build the facility. In 2010, in the wake of problems caused by the global financial crisis, VTB took control and set up a management company named MC Dynamo to develop it.
VTB is financing the project partly through a 440 million euro ($472 million) package that was put in place in 2012, provided by a group of European banks backed by SACE, the Italian export credit agency. As part of that deal, Codest International, part of Italy’s Rizzani De Eccher construction group is building the project. Other costs are being financed by the bank.
Since taking over, MC Dynamo has made major changes in the plan. At one point, the stadium was designed to be big enough to hold 45,000 spectators so it could play host to games during the World Cup championship scheduled to be held in Russia in 2018.
But MC Dynamo, which is partly owned by Dynamo Sports, downsized the stadium to hold only 26,000 fans after it was excluded as a World Cup venue. The new size is much closer to the number of attendees at a typical Dynamo football match and is better suited for the site, project officials said. The new management team also added a 14,000 seat arena under the same roof so the complex could be used for concerts and other events. The new plan also included a park, hotel, office buildings and apartments.
Other midcourse corrections were made as Russia’s economy deteriorated. Originally the plan called for about 70% of the 13 commercial buildings to be for offices and 30% to be for apartments. That mix has been reversed by the VTB Park developer because demand is much stronger for residential space than office space, people involved in the project said.
Meanwhile, to avoid the pain from the devalued ruble, MC Dynamo is buying more equipment from Russian, Korean, Chinese and other vendors that will accept Russian currency. But even some European suppliers “are now offering us contracts in rubles,” MC Dynamo’s Mr. Peregoudov said. “That surprised even me.”A development project will preserve part of Moscow’s former Dynamo Stadium, shown here in 1980. PHOTO: ASSOCIATED PRESS
Stadium officials say that it is on track to open on Oct. 22, 2017, a symbolic date because it is the birthday of Lev Yashin, a Russian goalkeeper considered by many to be best in the history of soccer.
“We want to finish it to show the rest of the world that life goes on,” Mr. Peregoudov said.
Original: THE WALL STREET JOURNAL