(Adds closing price in third paragraph, credit rating cut in ninth paragraph, analyst comment in 18th paragraph.)
June 9 (Bloomberg) -- Empresas La Polar SA plunged a record 42 percent in Santiago trading after the department-store operator said it may lift loan-loss provisions by $427 million.
The stock retreated to 1,352.2 pesos from 2,336.2 pesos yesterday, wiping out $524 million in market value. It was the steepest fall since La Polar began trading in September 2003.
The start of trading was delayed until 11 a.m. New York time after the company announced it may have to set aside additional provisions of 150 billion pesos to 200 billion pesos. Executives carried out lending practices that didn’t comply with company standards and weren’t approved by the board, according to a statement on the securities regulator’s website.
“This is completely crazy,” said Gavin Templeton, chief investment officer at Santiago-based brokerage Vantrust Capital. “It creates doubts about the company and the role of securities regulators in Chile.”
La Polar is restructuring its loans department, fired its lending manager and hired Eduardo Bizama as chief executive officer to replace interim CEO Martin Gonzalez, who returns to his prior position of commercial manager, the Santiago-based company said.
Dropped from List
Grupo Security SA’s brokerage unit dropped La Polar from its list of favorite Chilean stocks after the announcement, replacing it with larger rival SACI Falabella, according to an e-mailed note to clients.
The retailer, which targets middle-income earners, adopted more conservative lending practices in the second half of last year to reduce non-performing loans. Based in Santiago, the company said May 27 that it may sell as much as $400 million of new shares for expansions and to “strengthen capital.”
La Polar increased provisions by 29 billion pesos and wrote off a total of 43.2 billion pesos in loans, it said March 17 when it reported a 78 percent drop in fourth-quarter profit. The stock was the Ipsa index’s worst-performing retail stock this year even before today’s tumble.
Feller Rate, an affiliate of Standard & Poor’s, cut the company’s credit rating to BB+ from BBB+ and placed the rating on “creditwatch” with negative implications, according to an e-mailed statement. Feller cut the rating from A- on May 20.
The lending practices that led to La Polar’s additional charges probably aren’t being used by other Chilean retailers, said Barbara Angerstein, an analyst at Celfin Capital SA.
“We had noticed before inconsistencies on La Polar’s credit cards numbers, which we haven’t noticed in other retailers,” she said by telephone from Santiago today.
The government’s consumer watchdog, known as Sernac, filed a class-action lawsuit against La Polar for allegedly changing terms of consumer loans without seeking consent from customers, Sernac said in a June 2 statement on its website.
“Lending practices came to light that might have been carried out without authorization from the board and in violation of company criteria and parameters,” La Polar said in today’s statement. “Those practices could have an impact in the levels of additional provisions required by the company.”
La Polar said it plans to disclose a more precise provision estimate within three weeks.
Today’s share price fall could create an acquisition opportunity, Santiago-based brokerage Euroamerica Corredores de Bolsa SA wrote in a note to clients.
“We recommend holding on to the stock considering the potential upside in the case there’s a takeover,” Euroamerica analysts including Ximena Garcia and Marcelo Barrero wrote.
La Polar plans to spend about $250 million from 2012 to 2015 to open 10 stores in Colombia and eight in Chile, Chairman Pablo Alcalde said May 3 at a conference in Santiago. That’s in addition to the three stores it will open this year in Colombia and three in Chile.
The new provisions probably will force La Polar to review its expansion plans, the brokerage unit of Banco de Credito e Inversiones said.
“Considering that the company posted earnings before interest, tax, depreciation and amortization of 69 billion pesos in 2010, the increase in provisions will affect the company’s cash-flow generation,” analysts including Veronica Perez and Marcelo Catalan, wrote in an e-mailed note today.
La Polar’s first-quarter profit rose to 6.21 billion pesos from 3.92 billion pesos a year earlier, it reported April 29. Net income fell 38 percent in 2010 from a year earlier.
--Editors: James Attwood, Glenn J. Kalinoski
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