Rocky road for real estate developers

It's been a "hectic" year for Orco Property Group, according to CFO Nicolas Tomassini, but the company is further away from the precipice after it recently emerged from a court-ordered protection from creditors that had sheltered the firm for one year. The Czech Republic's other big development company, ECM REI, is meanwhile facing a bondholder meeting June 3 to decide whether the company will have to face early repayment of bonds.

The Paris Commercial Court also approved the next step in Orco's restructuring plan, which was also formulated as an exit from the yearlong protection. While the mother company is based in France, Orco is focused on Central and Eastern markets.

"We're not fully restructured yet, but we are very advanced in the process now," Tomassini told The Prague Post. "We're focused on our core business. In 2009, we restructured with the banks, and now we've got a debt service adapted to our revenues."

That debt service is expected to last nearly 10 years, but the extended time allows the company enough liquidity to continue projects that were frozen last year and expand with new ones.

"We still have a job to do before we're going to be really sound, profitable and stable. That's what we're going to show through this year and 2011," Tomassini said.

At the end of 2009, Orco's debts totaled 1.97 billion euros. While still not out of trouble, the company at the very least isn't facing bankruptcy anymore, said analyst Patrik Vyroubal from Atlantlik FT.

"The court decision is certainly a positive one for the share price, but Orco has a lot of work in the time ahead. They've got to implement this restructuring plan, and the court decision is only the first step in avoiding liquidation," he said.

In the first quarter of 2010, Orco managed to whittle losses down to 15.6 million euros, down from 45.7 million euros one year ago, the company announced May 20. Revenue, however, also dipped from 54.8 million euros to 51.5 million euros in the same period.

"This decrease by 3.3 million euros is more than compensated by a decrease in the cost of goods sold, in employee benefits and in other operating expenses for 6.6 million euros," the company said in a press release.

The company is nevertheless planning to resume some projects in the region thanks to the debt repayment plan.

"We're able to launch new projects, but we'll be cautious about achieving a certain level of pre-sales before we start building," Tomasini said. "Over the coming months, we're also on the starting blocks for a number of projects."

EMC REI, established in 1991 by Milan Janků, announced first quarter losses of 1.97 million euros this year, compared with an operating profit of 300,000 euros in the same time period last year. The upcoming bondholder's meeting will have to address the company's debt, at 80 percent of its asset value, compared with the agreed debt-to-asset ratio of 65 percent, according to the Czech News Agency. The company has not sought court protection from debts, but may have to do so if negotiations with bondholders fail, Vyroubal said.

"I expect tough negotiations [at the bondholders' meeting]," Vyroubal said. "The bondholders have a difficult decision because, if they force an earlier repayment, ECM has almost no cash, and the bondholders would basically be in the same position. They'll have to renegotiate and agree to sell properties in order to partially redeem the bonds."

Claire Compton can be reached at
ccompton@praguepost.com