(Adds closing stock prices and quote from central bank president in twelfth paragraph.)
June 20 (Bloomberg) -- Empresas La Polar SA, the Chilean department-store operator under investigation for consumer- lending fraud, fell by a record after doubling an estimate for loan-loss provisions and naming its second chairman in a week.
La Polar shares plunged 63 percent and bond yields surged as regulators lifted a weeklong trading halt. The stock traded at 533.54 pesos at 4 p.m. New York time from 1,430 pesos on June 13.
The company has lost 77 percent, or $950 million, of its market value and yields for some of its bonds have jumped almost tenfold since the loan losses were unveiled June 9. Responding to a regulatory request, La Polar said June 17 that it faces additional provisions of 420 billion pesos ($889 million), compared with an initial 200 billion-peso forecast.
“A week ago I would have said somebody would buy the company,” said Stacy Steimel, who manages $800 million in Latin American stock at PineBridge Investments. “At this point, with the amount of debt, and trading under its asset liquidation value, what would a buyer get?”
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. Clients are being offered reduced interest payments and fines.
Ten Times Ebitda
La Polar said it may have to set aside a total of 538 billion pesos, including previously recorded bad-loan charges. The revised total is more than 10 times last year’s earnings before interest, taxes, depreciation, and amortization, according to Bloomberg data.
“The new figure took us all by surprise,” Claudio Gonzalez, head of equity research at Santiago-based brokerage Tanner Corredores de Bolsa SA, said June 17, predicting the stock to fall to 340 pesos.
Heriberto Urzua, who replaced Pablo Alcalde as chairman last week after the irregularities were unveiled, stepped down from the position, he said in a statement sent by e-mail today.
“This is the result of fraud that is damaging confidence among our clients, shareholders and the country,” Urzua said in the statement.
Cesar Barros replaces Urzua as chairman, according to a statement posted today on the website of Chile’s securities regulator. Shareholders will also vote on a new board of directors on July 8, the company said in a separate statement.
Chile’s President Sebastian Pinera vowed to pursue those responsible for the irregularities “in an unrelenting way,” according to a government statement distributed June 18. While there are no indications that the irregularities are an industry-wide practice, the government is investigating the entire retail industry, Finance Minister Felipe Larrain said yesterday in images televised by channel Chilevision.
“All the technical evaluations we have performed bring us to affirm that the stability of the financial system is not at risk and that its implications on the system of payments are limited,” central bank President Jose De Gregorio said in a speech before lawmakers. “It is fundamental to prevent these kinds of events from occurring again.”
Pension fund manager AFP Capital SA, a unit of ING Groep NV, is preparing civil and criminal suits against those responsible, the company said today in an e-mailed statement.
The board hired Larrain Vial SA to devise a plan for extending maturities on bank loans, waiving bond covenants and selling new shares. The company will meet with shareholders June 22 and bondholders July 29. Deloitte Touche Tohmatsu is auditing the consumer loans portfolio and may have a final provisions figure in three months, the company said June 13.
La Polar plans to proceed with 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, according to the June 17 statement.
“We believe that the capital increase is absolutely necessary to keep the company alive,” Barbara Angerstein and Gustavo Fingeret, analysts at Santiago-based brokerage Celfin Capital SA, wrote in an e-mailed report today. “It will be the route of entry for a controlling stockholder.”
The Chilean unit of Fitch Ratings Ltd and Feller Rate, an affiliate of Standard & Poor’s, cut their ratings June 17 for La Polar’s debt to “C” from “BB” and “BB+,” respectively, according to statements on their websites. La Polar had 532 billion pesos in total liabilities as of March 2011.
The yield on La Polar’s 2017 inflation-indexed bond surged to an average 26.6 percent today, from 4.1 percent on June 2, while the yield for its 2016 inflation bond jumped to an average 37.6 percent from 3.87 percent in the same period, according to data from the Santiago stock exchange.
La Polar’s bigger rivals Cencosud SA and SACI Falabella rose today, leading gains by Chilean retailers, on speculation that its consumer-credit losses won’t spread to the rest of the industry. Cencosud climbed as much as 5 percent, the most since February, and Falabella gained 6.9 percent, the biggest gain since October 2008.
“The retail sector had been punished last week because of the uncertainty caused by La Polar,” said Peter McMenamin, an analyst at the brokerage unit of Banco de Chile. “The market is realizing now that the probability that they were involved in the same problems as La Polar is very low.”
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