Banks OK credit for Riga mall project

A consortium of Baltic banks last week announced an agreement to lend 21 million euros for the construction of a massive shipping mall in Riga that is planned to open in the fall of 2003.

The mall, to be called Domina Shopping, is the child of PK Investments, a subsidiary of Italian businessman Ernesto Preatoni's Pro Kapital group that opened the Kristiine Center in Tallinn. Total investments for the shopping center and garage area being built on the site of the once famous VEF electronics plant amount to approximately 61 million euros.

The loan will be syndicated by Hansabanka, Latvijas Krajbanka, and Estonia's Hansapank, with Hansabanka acting as co-ordinator for terms and procedures for disbursement.

According to bank officials, the loan is the largest for a single project in the national trade industry. Judging by the size of the planned mall – over 110,000 square meters – this is hardly surprising.

What's more, bank officials said that the 21 million euro loan was not the limit on financing for the project. A Pro Kapital official said that the loan would be disbursed in the near future.

The announcement of the loan came at a crucial time for Pro Kapital, whose operations have been scrutinized after allegations of fraudulent business deals. In April of this year Estonia's tax police charged Preatoni, its founder, with tax fraud, claiming that he failed to pay $1.33 million in income taxes.

In 2001 the Tallinn Stock Exchange delisted Pro Kapital, accusing the company of withholding vital financial information. At nearly the same time Preatoni left the Baltics, throwing into doubt the future of his companies' operations.

In the summer of 2001 work on the Domina Shopping complex was halted due to a lack of investor interest. At the time some $8 million had been poured into the project. Then, in March of this year, Preatoni, who returned to the Baltics, renewed his efforts on the mega-mall, saying he would use his own financing if needed.

"Banks are famous for giving you an umbrella when it's sunny and taking it away when there is rain," he said at a press conference in March. "I prefer my own umbrella."

Last week Estonia's Tax Board stated that Preatoni owes 51.2 million kroons ($3.27 million euros) in back taxes, including 27.2 million kroons in personal income tax. The government, on the Interior Ministry's recommendation, decided not to release the Italian investor from citizenship, which he received on a honorary basis in 1999. Last year Preatoni applied to have his citizenship canceled.

Allegations notwithstanding, work on the massive mall on Ieriku Street just beyond the Caka Street viaduct is proceeding, though the territory has yet to acquire a semblance of its future facade. According to Iveta Vanaga, public relations official for Pro Kapital, all metal construction will be completed by December, and work on utilities – heat, gas, electricity – has began.

Domina Shopping will consist of several buildings that will basically be grouped in two large sections that are to be connected by a large glass gallery. The first will feature a hypermarket and a covered parking area that will accommodate up to 2,000 automobiles.

In July Pro Kapital signed an agreement with Lithuania's VP Market on opening a Maxima hypermarket on the site. A hypermarket is essential for the success of any major shopping mall and the hyper Maxima at Domina will cover 11,000 square meters.

VP Markets began its descent on Latvia last year and has already opened over 30 budget supermarkets and two Maxima stores in Riga. In all the company owns some 175 stores across the Baltics.

Domina Shopping's second section will be exclusively for retail and will span nearly 50,000 square meters. The mall will boast over 100 stores and – a novelty in the Baltics – a food court.

Pro Kapital's Vanaga said that the company had been gathering applications from possible tenants for the last year, and that spaces are slowly filling up. "We're not in a hurry to sign everyone," said Vanaga. "We're looking for the right mix of tenants, so we study each applicant closely."