Baltcap keen to invest in Tallinn's Linnahall

Investment fund manager Baltcap has made a proposal to the Tallinn city government that it could make an investment in the Linnahall arena.

Mayor of Tallinn Mihhail Kõlvart (Center) said at the beginning of May that planned cooperation with Tallink for the reconstruction of Linnahall will not continue and new partners will have to be sought.

One potential partner wrote to the city government on July 8.

Peeter Saks, member of the management board of AS Baltcap, said that their infrastructure fund could contribute to the development of the exact functionality of Linnahall, act as an investor, as the project executor, and as the subsequent operator of the building.

Saks pointed out that the fund's investors include the European Investment Bank and Baltic pension funds. While the size of the fund is €100 million, by raising money from other sources it can establish projects worth up to €500 million. 

Baltcap representatives and Kõlvart will meet this Friday.

However, Tallinn Deputy Mayor Aivar Riisalu told ERR that decisions should not be rushed because the expectations of the fund may be higher than the city can offer.

"Our position in the development of Linnahall now is not so dismal that we should do it at any cost whatever. And it very much seems to me that with this project we will not be able to meet the expectations of any fund specifically in terms of yields," Riisalu said, explaining that the payback period of the Linnahall project could be between 25 and 30 years.

"And if we make something together with a fund at any cost whatever, and if the fund finds, for example, that in five or 10 years' time it wants to exit, then I think it can be a difficult situation," Riisalu said, adding that the city needs certainty.

Riisalu pointed out that the project's sustainability is guaranteed for a period that is longer than the timelines usually sought by funds. He also said that while he hasn't met with Baltcap representatives himself, funds generally expect returns of 5 to 8 percent per year.

"Based on Tallinn's credit rating, we would be able to borrow these 100 million ourselves at one percent per year. Why do we need to take money from the fund for which we have to pay, for example, 8 percent a year?" Riisalu said.

In his letter, Saks stressed that the inclusion of private capital would allow the city's funds to be used elsewhere and that the fund would become a motivated promoter for the project.

"The most costly situation is if Linnahall continues to stand idle and the direct and indirect economic stimulus from hosting international events there is missed," Saks added.

"On a scale comparable to Linnahall, the fund is in the process of building a 15,000-seat national football stadium in Vilnius, where the fund is the investor and operator," Saks wrote. €100 million will be invested in the stadium in the Lithuanian capital.

Riisalu meanwhile pointed out once again that if the city wanted to, it could also get money from a bank. The deputy mayor also stressed that no one has canceled the letter of intent signed by the city with Tallink last year.

"We do not have a clear plan today," Riisalu said. "Because the plan that was is currently frozen. But I prefer Estonian entrepreneurs rather than a fund at the moment," the deputy mayor said.

He said there is no sense in rushing decisions. According to the state budget strategy, the state is preparing to invest €20 million in Linnahall in 2022 and another €20 million the year after that.

"It is unrealistic to put 20 million there next year because even work on the design has not yet begun," Riisalu said. "The development of its content stopped at the moment when, a year and a half ago, this mess started. No one has been able to figure out to this day what this conference center must look like," the deputy mayor explained, adding that work on the content is about to start in the fall.

Baltcap is a Baltic private equity firm that finances buyouts, provides growth capital and finances infrastructure projects. Baltcap has a presence in all three Baltic countries.


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Editor: Helen Wright

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