Ingka Group, the owner of IKEA shops and MEGA trading centers in Russia, is going to sell more than two million square meters of real estate. Currently, the company is looking for buyers. Once the property is sold, Ingka Group will leave Russia completely, according to RBC citing sources familiar with the matter.
These sources insist that Ingka Group wants to sell everything it owns in Russia. The group already negotiated with two potential buyers but has not made a final decision yet.
Nevertheless, the press service of Ingka Centers, a subsidiary of Ingka Group, refused to comment on «rumors» about the selling of its Russian assets. Also, the company noted that MEGA trading centers are working as usual, although all IKEA shops were closed back in March 2022. The company said that its top priority is to provide its clients with high-quality service.
According to Infoline-Analytics, the Swedish giant controls 2.3 million square meters of commercial property, including 1.8 million square meters of leased property. Given these figures, Ingka is the biggest property owner in Russia. Forbes estimates that in 2021 Ingka earned about $350 million by leasing its real estate. The company’s portfolio includes 14 MEGA trading centers throughout the country, IKEA hypermarkets and land parcels where the company was supposed to build new trading centers.
Who can buy this property and how much would he pay?
Mikhail Burmistrov from Infoline-Analytics believes that Ingka’s assets in Russia may cost about $5 billion or $2.5 to 3 billion if a discount is taken into account. Nikolay Kazanskiy, an executive partner in Nikoliers, says that the fair value of the property portfolio is $10 billion excluding the discount. Last year, Russia adopted a new law that prevents foreign businesses from selling their Russian assets without permission from the Russian authorities. In order to get such permission a company has to consent with the following conditions: they agree to a 50% discount from the negotiated price; payment must be made in Russian rubles; and a foreign seller has to donate 10% of the deal to the state budget of Russia. A company can refuse to donate if it agrees that the payment will be made in installments within one to two years.
Ingka Group managed to make money from its property in Russia even after the COVID-19 pandemic. However, the full-scale Russian invasion of Ukraine has made it too risky for European companies to work inside Russia because of sanctions. For example, MEGA trading centers lost about 50% of their tenants, as many international brands have chosen to close their shops in Russia. Nevertheless, Kazanskiy noted that MEGA is a unique chain of trading centers in Russia and Europe. The selling price will likely be below market, so many may want to buy it.
«MEGA trading centers are still high-quality assets, so they may spark the interest of real estate managing companies or big holdings whose core business lies in spheres other than commercial real estate,» Marina Malakhatko from CORE.XP said.
The expert doubts that the Swedish group will succeed in selling its portfolio as a whole because it’s too big. It is on the verge of fantasy to reach such a deal, she said. The company would most likely divide the portfolio and sell its trading centers to different investors.
IKEA to sell its factories in Russia
Recently, the government of Russia approved a deal between IKEA and two Russian companies. Luzales will buy two IKEA factories in the Leningrad and Kirov regions, while Slotex will acquire the factory in the Novgorod region. Although no details of the deals went public, the government has already promised the new owners of these factories that they will be supported by all means.
In June, Viktor Evtukhov, deputy minister of industry and trade in Russia, said that IKEA was only going to sell its factories while the MEGA centers would continue to operate. «IKEA gives us a kind of hint that they want to keep an opportunity to come back to the market,» he said at the time. However, in the spring of 2022, when the war between Russia and Ukraine started, Ingka Group suspended the work of its IKEA hypermarkets in Russia. Moreover, the company opted to sell its factories that provided IKEA with lumber and furniture facades.
IKEA was founded by Ingvar Kamprad in 1943 in Sweden. Later, the company was transformed into Ingka Group with headquarters in the Netherlands. The company worked in Russia since 2000. In 2022, Ingka Group reported a 5.7% increase in revenues to €42 billion. Its operating income was about €2 billion, while net profit dropped from €1.6 billion to €300 million, partly because of the situation in Russia.