XXI Century buys 50% stake in two joint venture companies

XXI Century (XXIC LN: BUY) announced yesterday it has received the Antimonopoly Committee of Ukraine’s permission to acquire 50% stake in the joint venture companies Kapital-Market and Trest-Forum from Ferfax Limited. Kapital-Market and Trest-Forum hold titles to the land lease agreements in respect of the Alupka mixed-use complex in the Crimea. The consideration for the transaction contains of a cash element of USD 10 mln, which has been satisfied, and the issue of 1,007,935 ordinary shares in the share capital of XXI Century to Ferfax Limited. Alexander Romanov: The Alupka mixed use development is one of the largest projects within the company’s portfolio with expected CapEx of USD 225 mln.  We think the consolidation of the project’s ownership is being done to allow XXI Century to partner with an international financial institution in the project financing. We estimate that the Alupka project is effectively being acquired at P/NAV of 0.47 whereas the company is currently trading at P/NAV of 0.34. In our view, the news is negative rather than positive, given that XXI Century has to make outright cash outlay while it currently is facing a deficit of capital to fiund its existing portfolio. That said, the exact impact will be known after the company discloses sources of financing the Alupka project or terms of the potential partnership for its joint development.