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Orco Property Falls to Record Low on Dilution From Debt Swap

May 14 (Bloomberg) -- Orco Property Group SA tumbled to an all-time low on concern a proposed conversion of debt into equity will dilute the share value.

The stock slumped as much as 8.3 percent to 66 koruna, the weakest since the developer cross-listed on the Czech bourse in 2005, and traded down 5.6 percent to 68 koruna by 2:38 p.m. in Prague. More than 40,000 shares have changed hands so far today, or almost five times the three-month daily average.

Orco, which is overhauling its business and debt under a court-approved plan, said May 10 it has exchanged about 84.5 percent of bonds issued by its German unit for notes that will be converted into newly issued shares in the parent company. The move has lowered Orco Germany SA’s debt by about 109 million euros ($140 million), cutting its leverage ratio to 63 percent from 78 percent, Orco Property Group said in a statement.

“Share dilution for existing stockholders is certainly one of the main reasons” for the selloff, said Miroslav Adamkovic, an analyst at Komercni Banka AS in Prague, in response to e-mailed questions from Bloomberg News. “After Orco reached an agreement with most bondholders on this new restructuring, the issuance of new shares becomes very real.”

Debt-to-equity conversions by Orco Property Group and Orco Germany would increase the number of outstanding shares to about 108.3 million from 17.1 million, the company said on April 18.

In Paris, its home market, Orco slumped 1.8 percent to 2.70 euros, also poised for a record low.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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