The office of the Gallery group was also searched

Law enforcement agencies became interested in the business of the main competitor of the outdoor advertising operator News Outdoor Russia (NOR), whose office they searched in February. Yesterday searches took place in the Gallery group, the second largest outdoor surveillance operator in Russia after NOR. The lack of official clarification from Gallery's management may reduce investor interest in the group's bonds, which are already low-liquid, analysts warn.

Several operators reported to Kommersant about the visit of law enforcement agencies to the central office of the Gallery group in Bagrationovsky Proezd. The information was confirmed by Gallery employees who wished to remain anonymous. According to them, representatives of security forces appeared at the office around 13.00. Documents are still being seized at Gallery, the head of the capital’s operator company said at five o’clock in the afternoon. Gallery President Sergei Abramov and the new general director Kirill Korobeinikov, appointed just a week ago, did not confirm either the visit of law enforcement agencies or the fact that the documents were seized. The group’s PR director, Olga Grishaeva, also assured Kommersant that “there is no search and there has not been any.” According to her, all employees are in their places and continue to work.

Almost two months ago, on February 19, law enforcement agencies paralyzed the work of the largest outdoor advertising operator, News Outdoor Russia, for a day. Then the security forces also seized documents at the headquarters on Neverskogo Street, and the company had to dismiss all employees (see Kommersant on February 20). As NOR itself explained the next day, the “inspection” was carried out by employees of the Ministry of Internal Affairs, without specifying the unit. “Our legal department believes the inspection was conducted as part of activities involving third parties,” NOR said in a statement. Yesterday the company explained that in February they were visited by representatives of the Department of Economic Security (DES) of the Ministry of Internal Affairs. No claims or demands were received from the DEP after that inspection, the NOR press service emphasized.

The inspection at Gallery was also initiated by the Department of the Interior Ministry, says the head of the capital’s outdoor advertising operator, who is aware of the security forces’ visit. With the sanction of the Department of the Interior of the Ministry of Internal Affairs, the seizure of documents was carried out by representatives of the capital's Department for Economic Crimes and its divisions in the Western District, another Kommersant source clarifies. Yury Sinyukin, an employee of the press service of the DEP of the Ministry of Internal Affairs, told Kommersant that he does not have any information about operational activities in the Gallery office. The telephone numbers of the press service of the capital's Department for Economic Crimes were not answered yesterday.

Gallery Group is the second largest outdoor advertising operator in Russia after News Outdoor and 15th in the world. Owns a network of more than 43 thousand advertising structures of various formats in 34 cities of Russia, including more than 33 thousand in Moscow. At the end of 2007 it entered Ukraine. 45.7% of Gallery is owned by Baring Vostok Capital Partners, 21.3% by Morgan Stanley, 7.5% by the EBRD, and 25.5% by the founders and top management. Projected 2007 revenue is $150 million, adjusted EBITDA is $46 million.

Law enforcement agencies were primarily interested in documents related to the activities of Gallery Service LLC and Outdoor One LLC, members of the group, assures Kommersant’s source close to the group. The first is the owner of advertising structures, the second is only a seller of advertising surfaces, both its own and other operators. In its reporting, the group clarifies that Gallery Service pays a single tax on imputed income (its amount varies depending on the region where the authorities set their increasing and decreasing coefficients), and Outdoor One pays all regular taxes. According to the results of nine months of 2007, advertising on its own structures brought Gallery more than $87 million, and the intermediary business — $11.6 million.

Starting this year, the Ministry of Internal Affairs began to sue outdoor advertising operators. Thus, the Center for Rapid Response and Special Events in the Field of Road Safety has already successfully sued News Outdoor, after which it filed claims against the operators "Rasvero" and "Papillons", demanding to dismantle those that do not meet the requirements of GOST R 52044-2003 "Outdoor advertising on highways" " designs (see "Kommersant" dated March 13). Today, about 80% of all advertising structures in Russia do not comply with this GOST, which is in force in the absence of industry technical regulations, according to estimates from the ESPAR-Analyst company.

Unlike News Outdoor, the Gallery group has securities that are listed on the stock market. In May 2006, the company issued Eurobonds for $175 million with a coupon rate of 10.125%. Now the yield on Gallery's securities for the offer scheduled for May 2010 is at a weighted average price of 30.53% (data from Cbonds). “Bonds are low-liquidity, and investments in them are high-risk,” admits Alexey Demkin, an analyst at the Trust investment bank. He advises the group to give an official explanation regarding yesterday's seizure of documents, so as not to shake the confidence of the few investors who are interested in the company's securities.

Timur Kommersant-Bordyug, Sergey Kommersant-Sobolev

The operatives lost their shield