Super-Yacht Pedlars in Monaco Fret Russia Sanctions Ending Party

The million-dollar question at this year’s Monaco Yacht Show: Are the Russians coming?

Economic sanctions in the past months by the U.S. and Europe in response to Russian President Vladimir Putin’s incursions into Ukraine have left the super-yacht industry bracing for fewer orders. Russian billionaires have been a driving force in the market for the world’s biggest yachts as evidenced by the 162.5-meter-long “Eclipse” owned by oligarch Roman Abramovich.

Industry representatives gathering this week in Monaco for the annual yachting trade fair are wondering if geopolitical pressures are putting the party on pause.

“Clearly there have been projects in the industry that haven’t materialized because of the situation,” said Peter Lurssen, managing partner of the family-owned Lurssen Werft GmbH shipyard based in Bremen, Germany, which specializes in building the longest luxury motor boats. “We have had early discussions with some people who asked to postpone final contracts.”

Lurssen was among yachting executives at the show along Port Hercules exhibiting gleaming, hulking boats with swimming pools, spas, gyms, marble bathrooms and baby grand pianos. With helicopter landing pads, million-dollar tenders and the finest crystal and chinaware, the boats are toys for the super-rich.

“The Russians are a very important part of the customer base,” said Theo Hooning, secretary general of the Superyacht Builders Association.

The proportion of yachts measuring more than 40 meters owned by Russians has more than doubled over the past five years to about 8 percent of the global fleet. That’s the fastest-growing segment of the market and puts the Russians just behind the 9 percent of the fleet in Middle Eastern hands. Western Europe and the U.S. represent by far the biggest portion.

‘Shiny Toys’

Under successive waves of sanctions that have been unveiled since Russia annexed Crimea in March, Europe and the U.S. have blacklisted dozens of Russian political and business leaders as well as placing restrictions on companies and industries.

The U.S. Department of Homeland Security has begun a search for planes, yachts, mansions and other U.S. belongings of Russians facing these restrictions. Agents are looking for “shiny toys” that wealthy Russians on the sanctions list may have hidden, said John Tobon, who heads the agency’s financial investigations division in Miami.

This week, Italy froze luxury properties belonging to Arkady Rotenberg, a Russian billionaire blacklisted by the European Union for being one of Putin’s “cronies.”

The assets are valued at as much as 28 million euros ($36 million) and include the Berg Luxury hotel in Rome and properties in Sardinia, according to an Italian financial police official who asked not to be identified because he isn’t authorized to speak to the press.

Russian Flavor

“People could be struggling to take money out of Russia,” Jonathan Beckett, CEO of yacht brokerage Burgess said in an interview in Monaco. “It’s all about timing and perception. Is it the right time to be seen enjoying yourself on a yacht?”

As one of the top super-yacht brokers, Burgess and its competitors have set up offices in Moscow along with other locations from Monaco to Miami. The industry works hard to maintain a cloak of secrecy over yacht transactions so as not to draw attention to their owners. Still, the personalized interiors on some yachts on display in Monaco this week show an unmistakeable Russian flavor -- neon and glass glitter mixing with gilding and inlay giving them a Vegas-meets-Russian-Baroque feel. That may not be set to stop, yacht salesmen said.

“We are still in conversation with a number of Russian clients,” said Mark Cavendish, sales and marketing director of Heesen Yachts. All ten of the shipyard’s yachts made last year were for Russian clients, as are about three quarters of the dozen projects underway in 2014, he said.

Some Disappointments

“For the past five years not just us but all the yachting industry has been heavily reliant on Russian clients,” he said.

The impact of sanctions may not be evenly spread over all of the industry and it’s still early days.

The sanctions were progressively tightened as the conflict on border between Ukraine and Russia worsened. The clashes have killed more than 3,200 people, the United Nations estimates. Ukraine this week urged pro-Russian separatists to stop shelling government troops and start withdrawing their heavy weapons, while President Barack Obama said Russia must choose peace to have U.S. sanctions lifted.

Meanwhile, speaking in Monaco on the deck of a super-yacht for sale for 119 million euros, Burgess’ Beckett acknowledges “a few disappointments in the market.”

“The political situation is having an effect,” he said.

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