Bloomberg News

La Polar Extends Record Drop Before Share Sale Vote in Chile

June 21, 2011

(Adds closing share prices.)

June 21 (Bloomberg) -- Empresas La Polar SA extended a decline that has wiped out about $1 billion of market value in less than two weeks as the Chilean department-store chain seeks shareholder consent for the sale of new stock.

La Polar fell 12 percent to 467.26 pesos in Santiago after a record 63 percent tumble yesterday when trading resumed from a weeklong halt.

The stock has plummeted 80 percent and bond yields have soared since the company unveiled on June 9 consumer-lending irregularities that require additional provisions, triggering regulatory and criminal investigations. Shareholders will vote tomorrow on a proposal to raise $400 million in new shares.

“Pension funds are expected to ask for tough conditions to approve the share sale,” said Jose Hassi, who helps manage $500 million as chief executive officer of Penta Administradora General de Fondos SA in Santiago. “The capital increase is extremely important for the company and even more important is that it will be the way for somebody, hopefully a strong retailer, to acquire control.”

La Polar said executives restructured 475 billion pesos ($1 billion) of overdue credit without getting the consent of the more than 400,000 customers involved or informing the board. Responding to a regulatory request, La Polar said June 17 that it faces additional provisions of 420 billion pesos, compared with an initial 200 billion-peso forecast.

Pension Conditions

Chilean pension funds, known as AFPs, requested a freeze of La Polar’s expansion plans, an end to executive stock options and clarification on what the money will be used for as conditions to approving the share sale, financial daily Diario Financiero reported today, citing people familiar with the negotiations that it did not identify.

Public relations executives at AFP Planvital SA and the Chilean AFP association didn’t respond to telephone messages seeking comment. AFP Cuprum SA declined to comment in an e- mailed response to questions. AFP Capital SA, a unit of ING Groep NV, said it had no information on the subject in an e- mailed response to questions.

La Polar said it may have to set aside a total of 538 billion pesos, including previously recorded charges. The revised total is more than 10 times last year’s earnings before interest, taxes, depreciation, and amortization, according to Bloomberg data.

Heriberto Urzua, who replaced Pablo Alcalde as chairman last week after the irregularities were unveiled, stepped down from the position, he said in an e-mailed statement yesterday.

Urzua was replaced by Cesar Barros, who as head of Chile’s salmon exporters association led negotiations to restructure farmers’ bank debt after a virus outbreak decimated fish stocks.

No State Rescue

Chile’s President Sebastian Pinera vowed to pursue those responsible at La Polar “in an unrelenting way,” according to a government statement distributed June 18. The government won’t use state funds to “rescue” La Polar, Finance Minister Felipe Larrain said yesterday in an interview with Radio Infinita. Authorities are studying changes to credit card rules, he said.

“The fundamental impact of La Polar’s financial event and disaster is relatively internalized in the economy in the sense that it caused damage to clients, it caused damage to investors,” central bank President Jose De Gregorio told reporters today in Santiago. “There was an impact on overall confidence.”

De Gregorio called for better consumer and investor protection after the case exposed shortcomings in regulations and oversight.

Devising Plan

La Polar hired Larrain Vial SA to devise a plan for extending maturities on bank loans and waiving bond covenants. The company will meet with bondholders July 29. Deloitte Touche Tohmatsu is auditing the credit portfolio and may have a final provisions figure in three months, the company said June 13.

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.

The yield on La Polar’s 2017 inflation-indexed bond surged to an average 26.6 percent yesterday, 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. No bonds had traded earlier today, according to the exchange.

--Editor: James Attwood, Marie-France Han

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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