Sanctioned Russians spark concerns over industry crisis at Dubai Yacht Show

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By Devon Pendleton, Lisa Fleisher and Kateryna Kadabashy (Bloomberg) – Superyachts, the ultimate symbol of excess, have long had a hint of filth in all their splendor.

Other S-words are hanging in the air at this year’s Dubai International Boat Show – sanctions, confiscations.

In normal times this yacht show, held in a brand new marina, would be just like any other: dizzying displays of waste put on to attract a growing universe of potential buyers and to impress ordinary viewers.

But the war in Ukraine and sanctions against some of Russia’s wealthy elite have pushed superyachts to the forefront of public consciousness like never before.

This week’s show is still packed with boats that are out of reach for 99.99% of the world, even though there’s nothing quite like Dilbar. This is Alisher Usmanov’s superyacht, the largest by volume ever built, which is currently languishing in Germany due to European Union sanctions on the Russian billionaire. Other ships are stuck in France and Italy. One was almost sunk off the coast of Spain.

It’s more dramatic than the organizers of the Gulf emirate’s boat show could have imagined when planning the show after a two-year pandemic hiatus.

The venue is still hopping. Exhibitors, vendors and smartly dressed families with children in tow cavorted at 90 degrees on Thursday afternoon. Waiters came by with trays of watermelon juice and a VIP area set up by Nikki Beach Resort was packed. It’s a bustling atmosphere befitting a marquee industry event after a record year of sales.

‘The situation’

But the war and its effects are looming. Almost every conversation with industry professionals reverted to a neutral-sounding term for Russia’s invasion of neighboring Ukraine: “the situation.”

“Everyone is talking about it,” said Rainer Behne, CEO of BehneMar, a yacht broker and consultant.

Yacht builders cheering skyrocketing sales amid the pandemic are getting a shock dose of fear at the impact of sanctions and unprecedented public scrutiny.

Adding to the jitters, earlier this month the Financial Action Task Force added the United Arab Emirates to a “grey list” of countries with deficiencies in handling illicit finance.

“If someone wants to buy a yacht, it’s difficult,” says Behne. “The banks are shaking like crazy.”

According to a 2021 SuperYacht Times report, Russians make up the largest percentage of current superyacht owners after US citizens, nearly equaling Americans in the number of newbuild boats ordered in the past decade. Many of the yachts are large and flashy – and therefore labor intensive – which is an added boon for builders and designers.

Many industry officials shrugged off the effects of the sanctions, citing a culture of extreme secrecy that obscures most workers’ awareness of their customers’ identities. Most declined to discuss the protocol for this reason.

“Political Statements”

“It’s very difficult for a company to make any political statements about this,” said Farouk Nefzi, chief marketing officer at Dutch yacht builder Feadship. Of the 490 boats the company has made since 1949, only eight have been for Russian customers, he said, and the company frequently monitors sanctions lists in Europe and the US

Meanwhile, the comings and goings of superyachts, particularly those of Russia’s richest people and those close to Vladimir Putin, are being scrutinized. News organizations have followed their every move. So does the Florida teenager who rose to fame chasing Elon Musk’s private jet.

Satellite data collected over the past two weeks indicates a pattern of Russian boats retreating from European waters to non-EU territory. A few Russian yachts have docked in Dubai, including “A,” a 143-meter sailboat owned by fertilizer magnate Andrey Melnichenko, and Madame Gu, a blue-and-white ship built in the Netherlands and owned by the investor’s family and Duma -Member belongs to Andrei Skoch. There is no evidence that the movements are linked to the war.

The sanctions present the industry with a dilemma that has to endure an image crisis like never before.

logistical questions

Then there’s the logistics.

Superyachts are so large that a given shipyard can handle only a few projects at a time. It’s very likely that many of the customs vessels under construction are Russian-owned, said Sam Tucker, head of superyachts at maritime data company VesselsValue. Sanctions prevent builders from receiving payments from affected individuals or companies, and the partially completed hulls that are too large to move take up valuable space to build ships for customers who can pay.

Competition for space is so fierce that bids for unfinished superyachts are already pouring in from sanctioned Russians, people at the Dubai show said. Projects take many vendors and many years, and with the outcome of the war still uncertain, wealthy buyers vie to take contracts halfway through.

The transfer of the contracts could pose a problem later if the sanctions are suddenly lifted. It’s another hypothesis in an already foggy future.

“Who knows,” said Thomas Wieringa, marketing director for shipbuilder Damen Yachting, referring to the impact on shipyards. “We were in Miami three weeks ago – nobody expected anything.”

© 2022 Bloomberg LP

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