A large number of ambitious projects has brought the biggest Czech developer Orco down to its knees. What would under standard circumstances make the company, with more than 200 development projects in central Europe, one of the regional leaders, forced it now – in this turbulent time – to ask a court for protection from creditors. The French judiciary complied with the request on Thursday.
The head and founder of the company, Jean-Francois Ott, was once admired as a real estate visionary. Now he wants to take a time off to try to save his company from bankruptcy and himself from being fired. Minority shareholders want his head. “Ott is not acceptable as a partner for us any longer,” chairman of the SOS Orco association, Luboš Smrčka, who represents almost 10% of minority shareholders, told HN.
It will be a hard nut to crack for Ott now that his company’s debts are almost as high as the value of the firm’s assets. The unfavourable situation on real estate markets is making it even worse – the company is trying to sell some property to be able to finance its operation. But it has to sell the houses at low prices, and there is still little demand for them.
“Orco’s expansion was exaggerated,” Cyrrus analyst Karel Potměšil said. And the expansion is the reason why Orco is caught in the debt trap. Last year it had to pay EUR 18 million just in interest on a quarterly basis, and the sum is likely to be even higher this year. Ott has therefore come up with new ideas for what to do. He will want to get rid of hotels and focus on the key business – commercial property lease and residential projects. At the same time, he will want to leave some markets and focus on Prague, Berlin, Warsaw, Budapest and Bratislava only.
“The approach of financing banks will be a key factor without any doubt,” said Michal Hrnčíř of the real estate team at the law office Ambruz&Dark. Finding a strong investor would help Ott – like the entry of Kellner’s PPF into the rival developer ECM. But when a group of Orco managers was trying to lure the Swiss investment fund Cogef, they had to say good-bye, according to media reports.
Orco’s 2008 unaudited sales reached the 2007 level – roughly EUR 300 million. But the number of flats the company supplied to the market fell some 50% to 764. Still in the summer of last year, Orco’s assets were as high as EUR 2.7 billion. But the value has fallen owing to the crisis and even analysts do not dare to say how much. Net asset value at ECM, for instance, dropped by 43% on the year to EUR 140 million.
“The way the company has behaved in recent days is not standard,” BH Securities analyst Petr Hlinomaz said. Orco has postponed the announcement of 2008 results and is not communicating with shareholders too much. But still before the Thursday announcement, investors trusted the company and bought its shares in large amounts – between Monday and Wednesday the price of one share increased from CZK100 to CZK 157.
“The property should not get lost,” Hlinomaz said. But the biggest problem now is cash, which is hard to obtain now that banks are unwilling to lend money for some projects or charge high interest and that the value of properties and demand for them is falling.
Moreover, there is also a fight for control over the company. Several new strong shareholders have appeared recently. With so many owners, having let’s say a 20% majority at the general meeting is enough to push one’s interests through. The investment company Prosperita acquired a 5% stake in the company and wants to raise its influence further, its head Miroslav Kurka said. Private investor Martin Burda bought more than 2.7%, and the association of small shareholders SOS Orco controls some 8% of shares. The remaining small shareholders hold over 70% of shares in Orco.
