Luštica Development has asked the Montenegrin government to approve the pledging of its right to use the Luštica Bay marina and adjoining waterfront promenade as security for a €15 million loan from Belgrade-based Alta Bank, extending the resort developer’s reliance on assets built on leased state land to support new borrowing.
The proposed facility would finance permanent working capital rather than a separately identified hotel, residential building or infrastructure project. It carries a fixed interest rate of 8.5 per cent, a five-year maturity and a 12-month grace period.
The request was considered at a government telephone session on 29 June 2026, but the conclusions had not been published by 26 July. It therefore remains unclear whether the cabinet of Prime Minister Milojko Spajić approved, rejected or attached additional conditions to the arrangement.
The unresolved decision is commercially important because the proposed collateral is not an ordinary privately owned building. Luštica Development constructed the marina and promenade on cadastral parcel 117/2 in Radovići, within a resort developed across almost seven million square metres of land leased from the Montenegrin state.
The company is not proposing to mortgage state ownership of the land itself. The intended security concerns its contractual right to use the marina and waterfront facilities. That distinction limits the direct sovereign exposure, but it does not make the pledge routine. Enforcement following a default could affect control over an operational tourism asset located on public land and governed by a long-term state development agreement.
The government is consequently acting in several roles at once: landowner, contracting authority, regulator and minority shareholder in Luštica Development. Consent would not constitute a sovereign guarantee of the €15 million loan, but it would allow a private creditor to acquire enforceable rights over an asset closely connected to state property.
The 8.5 per cent rate points to expensive working-capital finance
The commercial terms imply a meaningful financing burden. At 8.5 per cent, the €15 million principal generates approximately €1.275 million of annual interest before fees.
Assuming interest is paid during the 12-month grace period and the principal is subsequently amortised in equal monthly instalments over four years, debt service would rise to approximately €370,000 a month, or around €4.4 million a year. Total interest over the five-year period would approach €4 million, taking aggregate principal and interest payments to roughly €19 million.
The precise amount will depend on the amortisation schedule, arrangement fees, prepayment provisions and whether interest is paid or capitalised during the grace period. None of those additional terms has been disclosed.
The fixed rate protects Luštica Development against further increases in borrowing costs, but 8.5 per cent is a high price for euro-denominated secured debt supported by a completed marina and promenade. The margin appears to reflect a combination of development risk, the complexity of collateral situated on state land, the facility’s working-capital purpose and the cross-border enforcement requirements faced by a Serbian lender.
Permanent working capital generally finances operating liquidity, construction timing differences, supplier payments and the gap between expenditure and cash collection. It does not create a discrete asset whose revenue can be ring-fenced for repayment. Alta Bank is therefore seeking security over an established resort facility rather than relying only on the future cash flow generated by the use of the loan.
The marina has strategic value because it supports residential sales, hospitality revenue, retail activity and the wider positioning of Luštica Bay as an integrated coastal destination. Its value to the development may exceed the cash it generates independently through berth fees and commercial leases.
This makes the collateral commercially strong but potentially difficult to enforce. A bank taking control of a right of use over a marina inside a functioning resort would need contractual clarity on operation, maintenance, access, subleasing, concession obligations and the treatment of adjoining public space.
The state is being asked to accept enforcement risk without borrowing itself
The proposed arrangement should not be described as Montenegro pledging its own land directly for Luštica Development’s debt. Alta Bank would receive security over the company’s use right, subject to the underlying lease and development contracts.
The state nevertheless retains an economic and legal interest. A default could trigger a transfer, sale or enforcement process involving rights derived from a public contract. The government must know who can acquire those rights, whether the bank can transfer them to another operator and what standards that replacement party must satisfy.
Consent should therefore define the limits of the lender’s remedies. It should address whether Alta Bank may take possession, appoint an operator, sell the pledged right or assign it to a third party. It should also preserve the state’s ability to reject an unsuitable purchaser and require continued operation of the marina and waterfront.
A properly structured direct agreement would normally establish notice periods, cure rights and step-in procedures before enforcement. It would also clarify which obligations survive a borrower default and whether the bank or a replacement operator must continue paying lease charges, maintaining infrastructure and respecting public-access conditions.
Without such provisions, the value of the security may be uncertain for Alta Bank and the consequences of enforcement unpredictable for Montenegro. The state could find itself negotiating under pressure after a default rather than controlling the process in advance.
The government’s Protector of Property and Legal Interests warned the Ministry of Spatial Planning, Urbanism and State Property about risks arising from the transaction on 18 June. The institution left the final assessment of acceptability to the government and recommended obtaining the views of the representative responsible for Montenegro’s equity interest in Luštica Development.
That advice reflects the transaction’s hybrid character. This is not simply approval under a land lease, nor is it an ordinary shareholder decision. It affects contractual rights, public property, minority-shareholder value and the security position of a foreign commercial bank.
Luštica Development’s balance sheet explains the need for liquidity
Luštica Development’s 2025 results show a growing resort operating within a capital-intensive expansion cycle.
Revenue increased by approximately 12 per cent to €90.34 million, from about €79.96 million in 2024. Total expenses rose much faster, increasing almost 27 per cent to approximately €89.19 million.
Net profit consequently fell from €9.13 million to only about €570,000, while EBITDA declined from €16.88 million to approximately €9.91 million. The deterioration does not indicate an absence of demand, but it shows that construction, infrastructure, operating and development expenditure consumed most of the year’s additional revenue.
The proposed €15 million loan is equivalent to approximately 16.6 per cent of 2025 revenue, 151 per cent of EBITDA and more than 26 times reported net profit. Annual interest alone would be more than twice the 2025 net result.
Measured only against EBITDA, the post-grace annual debt service of approximately €4.4 million could appear manageable, representing about 45 per cent of the 2025 figure. That comparison excludes tax, capital expenditure, working-capital movements and payments on existing borrowings. It also assumes that EBITDA does not weaken further.
Total assets increased from €248.1 million to approximately €285.32 million during 2025, while equity rose from €65.43 million to €91.84 million. The implied equity ratio improved to about 32 per cent, providing the company with a stronger capital base.
Long-term liabilities reached approximately €33.63 million, while short-term liabilities remained much larger at around €149.64 million. Not all liabilities represent bank debt, as resort developers normally carry supplier obligations, customer advances and other project-related balances. The scale of current liabilities nevertheless helps explain the search for permanent working capital.
The new facility would equal about 5.3 per cent of total assets and 16.3 per cent of equity. The balance sheet can absorb a loan of that size in isolation, but its significance changes when considered alongside other recently disclosed facilities and collateral requests.
The marina request follows earlier pledges to Alta Bank
The government has previously approved security packages supporting Luštica Development’s borrowing from Alta Bank.
In 2024, it consented to a second-ranking out-of-court mortgage over The Chedi Luštica Bay hotel as collateral for a €3.5 million loan. A year later, it approved another mortgage over the hotel in favour of the same bank for the refinancing of credit obligations, although the amount of the replacement facility was not disclosed.
The new €15 million loan would broaden Alta Bank’s security from hotel property to the marina and promenade. This suggests a continuing banking relationship rather than a one-off transaction.
Alta Bank itself has expanded rapidly. It ended 2025 with approximately RSD194.1 billion, about €1.65 billion, of assets, an increase of almost 60 per cent in one year. Customer loans reached about RSD75.8 billion, while net profit declined to RSD1.37 billion, approximately €11.7 million.
The Luštica facility is small relative to the bank’s balance sheet but material enough to require robust collateral. It also represents cross-border exposure to Montenegrin resort real estate, where repayment ultimately depends on continued property sales, tourism income and construction execution.
Alta Bank will need enforceability under Montenegrin law rather than merely a contractual pledge recognised in Serbia. Priority against other creditors, registration of the security, treatment of the state lease and the rights of existing mortgage holders will determine the real recovery value.
A second €35 million facility increases the importance of collateral control
Luštica Development has also negotiated a separate €35 million loan with AIK Bank in Belgrade, under an agreement concluded in December 2025.
The original security package included blank promissory notes, mortgages over buildings under construction, pledges over receivables from property-sale contracts and Orascom’s shares in Luštica Development.
The government approved mortgages over buildings developed on leased state land and consented to the pledge over Orascom’s shares. Luštica Development subsequently requested that the shareholder pledge be replaced by security over its lease rights to 85,000 square metres of state land, describing the substitution as materially more favourable to the investor.
That request is significant because it would preserve Orascom’s ownership while transferring more collateral risk towards rights derived from state property. A pledge over sponsor shares exposes the investor’s equity in a default. A pledge over lease rights protects that equity to a greater extent while placing the financed project land more directly within the lender’s enforcement package.
The two publicly identified facilities amount to €50 million, excluding the undisclosed Alta refinancing and other existing obligations. This does not mean that all facilities have been fully drawn or remain outstanding simultaneously. It does show that government consent over collateral has become an increasingly important component of Luštica Development’s financing model.
For Montenegro, each request may appear manageable when considered separately. The cumulative effect requires a consolidated security register showing every mortgage, pledge, receivables assignment, ranking agreement and consent connected with the project.
Without that overview, the state cannot assess how much of the resort’s operating and development base is already encumbered, which lender has priority and what would remain available following a restructuring.
The project has invested more than €700 million but remains incomplete
Luštica Development has been developing Luštica Bay under a lease and construction agreement signed in 2009 and effective from December 2013. The project covers 6,923,260 square metres, or approximately 692 hectares, with about seven kilometres of coastline.
The master plan envisages an investment programme of approximately €1.1 billion, including eight hotels with 3,310 rooms, 1,250 residential units, two marinas, an 18-hole golf course, a conference centre, retail, restaurants, education, healthcare and year-round community facilities.
Government information indicates that more than €700 million has already been invested. The project company pays annual land rent of approximately €1 million, together with a turnover-linked component. Where permitted residential property is sold together with previously leased land, the state is entitled to €80 per square metre.
Orascom Development owns 90 per cent of Luštica Development, while Montenegro holds 9.96 per cent. The ownership structure gives the state direct participation in any increase in corporate value, alongside its rental and land-sale income.
Luštica Bay generated strong real-estate demand during 2024, when sales reached CHF107.9 million, up 22.8 per cent. The company sold 145 units at an average price of CHF7,728 per square metre and generated total revenue of CHF79.5 million under Orascom’s group reporting.
The resort therefore has genuine commercial momentum and substantial completed infrastructure. The financing issue is not whether Luštica Bay is a speculative site without investment. It concerns the amount and ranking of debt required to fund the next phase while the project’s operating margin is under pressure.
Missing investment verification weakens the state’s decision process
The most serious governance weakness is that Montenegro has not appointed the independent controller required to assess whether Luštica Development has fulfilled its minimum investment obligations.
The government instructed the Ministry of Tourism to launch a new procurement by the end of March 2026 for a company or internationally qualified accountant with substantial tourism-sector experience. Six months after the requirement was identified, no controller had been appointed, and the procurement was reportedly absent from the ministry’s original 2026 purchasing plan.
The government had also instructed the Ministry of Spatial Planning to begin negotiations on an annex to the 2009 agreement after receiving the controller’s report. That sequencing cannot proceed as intended while the independent assessment remains unavailable.
The absence of a controller does not establish that Luštica Development has failed to meet its obligations. It means the state lacks the formally required independent evidence needed to confirm performance before modifying contractual rights or approving additional encumbrances.
This matters because lender collateral and investor compliance are connected. A bank taking security over a contractual use right needs confidence that the underlying lease remains valid and that the developer is not exposed to unresolved claims over minimum investment, deadlines or contractual defaults.
The state faces the same problem from the opposite direction. Approving a pledge before verifying the investment may weaken its future negotiating position. Once a lender obtains security, amendments or enforcement actions can affect not only the developer but also a third-party creditor relying on government consent.
A transparent decision should therefore be based on an independent valuation of the pledged right, an updated report on investment obligations and a consolidated review of existing security. The loan-to-value ratio cannot be judged from the €15 million principal alone because no current valuation of the marina and promenade rights has been disclosed.
Consent should also be conditional on the loan remaining within Luštica Development and being used for documented project purposes. Permanent working capital is a broad category. The government has a legitimate interest in ensuring that funds secured by rights over Montenegrin state assets are not transferred to related parties or used elsewhere in Orascom’s international portfolio.
Luštica Bay remains one of Montenegro’s most important greenfield investments, with an asset base of €285 million, more than €700 million of reported cumulative investment and a development programme that can continue generating construction activity, tourism income and high-value property sales. Those strengths support access to debt, but they do not justify treating state-derived collateral as an ordinary corporate asset.
The central question is not whether a €15 million facility is large enough to threaten Montenegro’s public finances. It is whether the government can approve the pledge while preserving control over enforcement, maintaining the value of its 9.96 per cent shareholding and verifying that the developer has fulfilled the obligations attached to almost seven million square metres of public land.
