Bloomberg News

La Polar Estimates $1 Billion Provision, Seeks Bond Waivers

June 17, 2011

(Adds gain by rival retailer in 14th paragraph.)

June 17 (Bloomberg) -- Empresas La Polar SA, the Chilean department-store chain under investigation for consumer-lending irregularities, doubled its estimate for additional loan-loss provisions and said total charges may reach $1.14 billion.

La Polar, which is on a trading halt, may need to incur a further 420 billion-peso charge, according to a statement posted today on the securities regulator’s website, compared with a June 9 estimate of as much as 200 billion pesos. La Polar said it may have to set aside a total of 538 billion pesos ($1.14 billion), including previously recorded bad-loan charges.

The board, along with financial adviser Larrain Vial SA, is working on a plan to extend maturities of bank loans, waive bond covenants and sell new shares, La Polar wrote today. The company will meet with shareholders June 22 and bondholders July 29. La Polar securities have been suspended since June 13 after shares plunged 39 percent to 1,430 pesos and at least one bond reached so-called distressed levels.

“We had calculated that if the extra provisions were 200 billion pesos, the stock could fall to 910 pesos, and if they were 240 billion pesos, the stock would slump to 670 pesos,” said Claudio Gonzalez, head of research at Tanner Corredores de Bolsa SA in Santiago. “With the new figure, much higher than we expected, the price would fall a lot lower than that.”

The revised total loan-loss provision estimate is more than 10 times last year’s earnings before interest, taxes, depreciation, and amortization, according to Bloomberg data.

Without Consent

The company said executives restructured 475 billion pesos of overdue credit without the consent of the more than 400,000 customers involved or informing the board of the practice. Heriberto Urzua, who replaced Pablo Alcalde as chairman last week, said yesterday that the company will offer to reduce interest payments and fines for affected customers.

La Polar plans to proceed with a June 22 shareholder meeting to discuss the sale of $400 million in new shares. 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. The board will seek to waive bond payment acceleration and default covenants, the statement said.

‘Critical’ Share Sale

“Completing this capital increase is critical to have a company that continues operating,” Juan Andres Camus, Chairman of Celfin Capital SA, said yesterday in an interview. “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.

Banking and securities regulatory agencies are investigating the case and the government will probe any related criminal acts, Finance Minister Felipe Larrain told reporters in Santiago last night. Authorities are taking steps to protect the financial system, investors and members of the public, he said.

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.

Chile’s benchmark Ipsa index rallied 2.1 percent today. The gauge slumped 6 percent in the previous six days as some foreign investors cut holdings after La Polar’s losses eroded their trust in Chilean institutions, the brokerage unit of Banco de Credito & Inversiones wrote today in an e-mailed note.

Lending Rules

The government may modify lending rules for retailers, Deputy Finance Minister Rodrigo Alvarez said yesterday.

Cencosud SA, Chile’s largest retailer by sales gained 3.8 percent to 3,259 pesos, reducing a weekly loss to 6.6 percent. SACI Falabella, the largest by market value, gained 0.2 percent to 4,516.2 pesos, ending a seven-day losing streak. Empresas Hites SA, which like La Polar targets lower- and middle-income earners, had a record 19 percent weekly drop even after today’s 1.3 percent rebound.

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

Trading in La Polar is suspended through today, the securities regulator said June 13.

--With assistance from Camila Russo in Santiago. Editors: James Attwood, Brendan Walsh

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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