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Hotels venture is booked in for the long term

UNDAUNTED by the extreme volatility in Russia's stock and currency markets, Sir Rocco Forte's privately-owned hotels venture in the region is poised for further expansion.

Richard Power, commercial director of RF Hotels, believes the near-halving in stock values and the recent shock tactic of raising interest rates to 150 per cent won't affect the long-term success of the company's projects in the Russian Federation.

"You have to look at the locations we're in, and the market we're trying to serve, which is principally in-bound travel," he said. "Our top line is not a factor of domestic demand." Income in dollars against costs in roubles affords further protection. And everyone investing in Russia, he said, would expect bumps on the way.

Sir Rocco created RF Hotels in the aftermath of the bloody battle for Forte when he was ousted by Granada. He made his first investment in Russia last year, buying a 25 per cent stake in the voting shares of St Petersburg's fabled Astoria Hotel.

Russia's hotel business has a dim reputation, with tales of Mafia intrigue culminating in the bloody execution of American businessman Paul Tatum 18 months ago. Gunned down in the Metro after leaving the Moscow Radisson, the hotel he opened with a Russian group, Mr Tatum was the victim of a turf war.

RF Hotels has avoided Mafia entanglements. Instead it has the ambitious target of creating a hotel chain in Russia and the Commonwealth of Independent States catering for business travellers. In Nizhniy Novgorod, building work on the company's first start-up hotel in the country is in full swing. The 150-room four-star City Plaza in Russia's third largest city should open in August 1999, the first of up to 15 City Plazas across the former USSR. City Plazas aim to provide a standard level of service for business travellers.

RF Hotels is looking at sites in Permas in the Urals, and is negotiating a site in Baku, Azerbaijan, where it hopes to begin building this autumn. Both cities appeal because of their local industry. Permas has a substantial industrial complex focused on metals, with several multinationals considering investment in the area. Baku, near the Caspian Sea oil reserves, has an estimated 2,500 expatriates based in the region, but that is expected to swell to 40,000 within five years. The European Bank for Reconstruction and Development is examining the potential of investing in the hotels project.

RF Hotels has a headstart over the opposition. Hilton International, owned by Ladbroke Group, is seeking to enter the Russian market and is looking for a hotel in Moscow and discussing prospects in Kiev and Baku. Novotel is looking at the region but has yet to strike any deals. There is a Marriott International in Moscow, franchised to a US operator.

RF Hotels gained control of the flagship five-star Astoria in St Petersburg after the company won a privatisation tender. It owns 49 per cent of the shares and 25 per cent of voting rights. The city hopes to tender the rest of its shares some time this year, but details have yet to be confirmed. In the meantime, RF Hotels is about to embark on a $13m (pounds 8m) refurbishment programme.

The biggest problem doing business in Russia is the lack of commercial awareness in staff, says Michael Goerdt, general manager of the Astoria. Communication between functions within companies is also poor. Progress is also hampered by the extraordinary layers of official bureaucracy which can threaten a business's existence.

But the Astoria has already begun to see improvements as new techniques are introduced. Occupancy rates are up almost 8 per cent on 1997, at 64 per cent in May with 72 per cent projected for June.