La Polar Shares Plunge on Plan to Sell Convertible Bonds

Empresas La Polar SA, Chile’s fourth-largest department store operator, slumped after disclosing a plan to sell new shares worth more than twice its current market value as part of a debt restructuring.

La Polar dropped 16 percent to 36 pesos at 3:33 p.m. in Santiago, its seventh straight day of losses and its lowest price since February.

The retailer called a shareholder vote for July 1 to approve a debt restructuring that includes selling 80 billion pesos to 100 billion pesos ($180 million) of new 99-year, zero-interest convertible bonds as well as about $180 million in new shares to back the convertible bonds. La Polar’s current market value is $71 million.

“This may result in further dilution for current stockholders,” Guillermo Araya, the head of equity research at Renta4, said in a telephone interview from Santiago.

A vote among bondholders was called for July 2 and July 4. The company has two series of bonds outstanding for about $824 million in total, according to data compiled by Bloomberg.

Current shareholders will be given a 30-day rights period to buy the convertible bonds, with the proceeds going to pay debt, according to a presentation on the company’s website. The holders of these bonds will then have a three-year window in which the notes can be converted to 12.2 new shares for every 1,000 pesos, according to the presentation.

La Polar will also ask to reschedule payments for its current outstanding bonds, according to the presentation.

Leverage Ratio

The company’s goal is to reduce a key leverage ratio of debt to earnings before interest, tax, depreciation and amortization to 3.5 times from the current 20.6 times, according to the presentation.

The Santiago-based company has struggled to regain investor confidence since lying on financial statements and acknowledging that it modified loans without telling customers. The 2011 default came after it said it had been unilaterally restructuring past-due consumer loans to make them look current, capping loss provisions and boosting profit.

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