Future of Porto Franco development and fate of KredEx loan in the balance

The Porto Franco construction site in Tallinn's harbor area.
The Porto Franco construction site in Tallinn's harbor area. Source: Siim Lõvi/ERR

Whether the loan granted to a Tallinn real estate development by state credit agency KredEx will be withdrawn will take longer to decide than previously thought, and may not happen any time soon, partly since a Russian-owned firm has a greater claim on collateral via the development's mortgage.

Revelations about alleged influence peddling and bribery connected with the loan and involving the Center Party prompted the resignation of Jüri Ratas as prime minister earlier this week.

KredEx spokesperson Joonas Kerge told ERR's online Estonian news Friday that: "We have since Tuesday been analyzing the rights and obligations of the parties related to the loan agreement with Porto Franco OÜ. Legally speaking, this requires needs further analysis. We will find out the circumstances related to the financing in the future, and we will communicate with other creditors to find out their position and possible activities."

Russian fishing magnate is one of Porto Franco's creditors

These other creditors include a firm owned by Russian fishing magnate Dmitry Ozersky. Porto Franco borrowed over €36 million from the company, MMG Kapital OÜ, at 10 percent per annum. MMG's mortgage security held on the Porto Franco loan is higher than KredEx's, ERR reports.

Kredex has to conduct more analysis before deciding on its next step, Kerge added. "The financing of such major projects and the related legislation are always very nuanced. The goal of Kredex, regardless of how an agreement proceeds, is to fulfill its duty of care and make sure that all is correct and takes into account the rights and obligations of all parties."

The Porto Franco project, a combination of retail, office, leisure and residential space, located in Tallinn's harbor district, is part-built.

KredEx rejected similar loan

At the time the €39-million KredEx loan was granted, in September, critics said KredEx's money was supposed to go to functioning firms which were generating money and which could demonstrably prove they had been hit hard by the effects of the coronavirus pandemic, particularly with regard to lost tourism revenues.

An application for a loan of almost the same amount, for the redevelopment of the historic Patarei former prison, not far from the Porto Franco site, was rejected, on a technicality.

Should Porto Franco go bankrupt, the state may be able to recover at least part of its borrowed funds.

Porto Franco majority shareholder avoiding media

Porto Franco's majority shareholder, Rauno Teder, has been incommunicado since an internal security service investigation into the KredEx loan was made public on Tuesday. Five people were named suspects in the investigation, including Teder's father, Hillar Teder, who has since been placed under arrest following a county court order.

Lembit Lump, 10 percent shareholder in Porto Franco and a board member, said that if emotion is taken out of the equation, the project is actually viable, as confirmed by those banks which agreed to finance it, and is in a good location.

A joint €102-million loan from the European Bank for Reconstruction and Development (EBRD) and Luminor bank expired in October as a result of non-compliance, however, meaning that KredEx may not now pay out all or any of the outstanding loan amount.

KredEx: Our loan was an interim one while Teder trial wrapped up

Lump said that had this €102-million loan materialized, there would have been no need for the KredEx loan, which was in effect an interim loan (its proponents have said success with the EBRD loan was predicated on getting the KredEx funds – ed.)

Lump could not say how much is actually needed to complete the project, nor how long current funds will last, ERR reports.

Part of the problem was that Hillar Teder was a defendant in an earlier case, part of the long-running Edgar Savisaar/Center Party corruption trial, which complicated the EBRD negotiations, though this did not mean their loan would not ever be forthcoming.

Another option, ERR reports, might be to sell the part-completed project, which has seen interest from potential investors, if the price is right.

Hillar Teder's lawyer, along with that of former finance ministry adviser Kersti Kracht, suspected of influence peddling in smoothing the way for the loan, will appeal the county court decision at the second-tier circuit court.

Center Party secretary-general Mihhail Korb also resigned, once the ISS investigation became public last Tuesday, with him as one of the suspects. The other two suspects are unnamed and reportedly not public figures.

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Editor: Andrew Whyte

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