Bloomberg News

Falabella Drop Unwarranted as Celfin Recommends Chile Retailers

June 17, 2011

June 17 (Bloomberg) -- Cencosud SA and SACI Falabella, the two largest Chilean retailers, fell more than warranted by their profit outlook after shares posted their biggest decline since 2008, the chairman of Chile’s biggest stock brokerage said.

Cencosud and Falabella have slumped more than 10 percent this week after smaller retailer Empresas La Polar SA announced irregular credit practices that may require $424 million in loan-loss provisions. La Polar’s losses, after executives changed terms on non-performing consumer credit without consulting clients, are the result of the company’s own corporate governance rather than an industry-wide practice, Juan Andres Camus, chairman of Celfin Capital SA, said yesterday from Bloomberg’s Santiago offices.

“This fall, without a doubt, represents an investment opportunity,” said Camus, whose company oversees about $10 billion in assets. “These companies are very well managed. I don’t see this as a systemic problem.”

Cencosud and Falabella, both based in Santiago, are trading at the smallest premium to the MSCI EM Latin America Index in more than three months, according to data compiled by Bloomberg. Falabella, the nation’s largest retailer by market value, trades at 25 times trailing profit, the lowest level since April 14, while Cencosud, the second largest, fetches 24 times, the lowest since March 17. The Latin American gauge has a ratio of 11.1.

Falabella and Cencosud have fallen 14 percent and 15 percent, respectively, this year while Chile’s Ipsa index has declined 8.1 percent and the MSCI EM Latin America Index has dropped 8.4 percent.

No Controller

La Polar, which unlike rivals has no clear controlling shareholder as all of its shares trade freely, said June 9 that it may have to raise provisions for bad loans by 200 billion pesos ($424 million). La Polar, based in Santiago, has been on a trading halt since June 13 after plunging 39 percent.

The company is still calculating the exact amount of provisions and has offered new terms to clients affected by unilateral changes, Chairman Heriberto Urzua told reporters yesterday. La Polar hired a unit of Deloitte Touche Tohmatsu to audit its consumer loans portfolio and expects to have a final provisions figure in three months, it said June 13.

Chilean authorities are taking steps to protect the financial system, investors and members of the public and will investigate any related criminal acts in the case, Finance Minister Felipe Larrain told reporters in Santiago last night. The government may modify lending rules for retailers, Deputy Finance Minister Rodrigo Alvarez said yesterday.

Empresas Hites SA, which like La Polar caters to middle-and lower-income earners, is down a record 20 percent this week. Ripley Corp SA, which also owns department stores, has fallen 11 percent, the biggest weekly decline since October 2008.

New Share Sale

“We know that other retailers that give credit and we have a great conviction that their credit practices are acceptable and their credit condition is truthful and well-informed,” Camus said. “There was an omission of information within the organization but I don’t think it’s generalized.”

La Polar plans to proceed with a June 22 shareholder meeting to discuss the sale of $400 million in new shares, Urzua said. The company planned to use the funds for its expansions and shore up its finances, according to a May 27 statement, before the irregularities were announced.

“Completing this capital increase is critical to have a company that continues operating,” Camus said. “If it doesn’t happen, bondholders will be facing a problem.”

The extra yield, or spread, investors demand to hold La Polar’s inflation-indexed bonds due in 2012 instead of similar- maturity central bank debt jumped to 1,894 basis points, or 18.94 percentage points, on June 10, compared with 1.54 percentage points on May 25 when the bonds last traded, according to data from the Santiago exchange.

Celfin was Chile’s largest stock brokerage by transaction volume at the end of last year, according to data posted on the Santiago exchange’s website.

--Editors: James Attwood, Brendan Walsh

To contact the reporter on this story: Camila Russo in New York at Eduardo Thomson in Santiago at

To contact the editor responsible for this story: David Papadopoulos at

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