Last checked at 23 Mar 2010 07:00
| Date: | 23 March 2010 |
| On behalf of: | Carpathian PLC |
| Embargoed until: | 0700hrs |
Carpathian PLC
("Carpathian" or the "Company")
Disposal of Arad and Cluj developments
The Board of Carpathian announces that the Company has entered into agreements for the disposal of certain subsidiaries that own the development sites of Arad (the "Arad Disposal") and Cluj (the "Cluj Disposal") (together the "Disposals") to related parties for nominal sums. The disposal of these non-core assets enables the Company to focus on the remaining investment assets within the core portfolio, reduce ongoing management costs considerably, whilst transferring all debt obligations currently encumbering the assets.
Background
Carpathian & Atrium Holdings Coop U.A. ("CA Holding"), which is owned indirectly by Carpathian as to 75% and by Bogol Management Ltd ("Bogol") as to 25%, holds four development projects in Romania being Arad, Cluj, Satu Mare and Baia Mare. Satu Mare and Baia Mare are core assets unencumbered with debt and will be retained by CA Holding.
Cluj was acquired in August 2007 for €14.3 million and Arad was acquired in September 2007 for €11.8 million. Since the commencement of development of Arad, property values have fallen significantly. These two assets secure a total of €48.3 million of debt drawn down from facilities provided by MKB Bank Zrt ("MKB") and will require further funding before any development can be completed. Arad and Cluj generated a loss of €30.9 million for the year to 31 December 2008. The net assets at 30 June 2009 for both entities were €(1.4) million which excludes intra-group loans of €31 million which will be written off on completion.
As part of the Disposals, the outstanding loans made by Carpathian to Arad and Cluj will be assigned to the buyers (as described below) within their respective ownership structures.
The Arad Disposal
The Arad development will be acquired by Glarstyle Limited ("Glarstyle") which is owned by certain key managers within Carpathian's development partners, Atrium Centers Management and within CPT LLP. Arcadom Zrt ("Arcadom"), the development's main contractor, will join as 50% shareholder of the Arad project.
Arad will be acquired by the buyers for a nominal amount. However, as part of the arrangements with MKB, Arcadom has agreed to provide financial support to the development in order to continue construction.
The Arad Disposal is conditional upon consent being received from MKB for the transfers together with an acknowledgement from MKB that Carpathian is released from any obligation to provide further funding to Arad and Cluj. To achieve such consent and to release the Company from funding any future costs through the Atrium management structure, Carpathian has agreed to contribute €400,000 to the subsidiaries being disposed.
The Company has commissioned a recent independent valuation of the Arad project resulting in an investment valuation of €21.4 million. Arad presently has €39.8 million of debt with a further €19.4 million likely to be drawn down prior to completion of the project, resulting in potential total debt of €59.2 million. The Company believes the net operating income for the project on opening will not exceed €3 million per year. Therefore, the Directors do not consider there to be any realistic chance of realisable equity value in the short to medium term.
The Cluj Disposal
Cluj will be acquired by Glarstyle for a nominal amount. The Cluj property is a vacant site with €8.5 million of debt presently drawn, against a recent independent investment valuation of €6.5 million. Again, the Directors do not consider there to be any realistic chance of realisable equity value in the short to medium term.
Transaction Rationale
The Company's stated strategy is to maximise cash returns to investors in the medium term, through appropriate asset disposals and reducing management costs associated with the Company's portfolio. Arad and Cluj which have significant debt obligations attached are in breach of certain banking covenants and the Company is not prepared to commit any further central funds to these projects. The Romanian property market is still fragile, with limited liquidity and consequently, MKB, the only lending bank to Arad and Cluj, required a solution outside the Company's ownership. In this regard, MKB wanted the existing project manager to continue to manage construction and pre-letting without forcing foreclosure. As a result, management initiated the purchase of Arad and Cluj. For the year ending 31 December 2009, the charge paid by Carpathian to manage the development assets was €1.5 million. These costs will in future be funded by the buyers and MKB.
The Company also commissioned a valuation report for Baia Mare and Satu Mare which indicated that, at the appropriate time, when liquidity returned to development land sales in Romania, the assets were worth retaining on the Company's balance sheet with limited associated ongoing costs. An updated valuation summary will be provided in the Company's preliminary results for the year ended 31 December 2009 in due course.
Completion of the Disposals will assist in achieving the Company's objective to reduce the running costs associated with the portfolio and will also remove a potential debt financing obligation in relation to Arad and Cluj.
Related Party Transaction
The Disposals are classified as a related party transaction for the purposes of the AIM Rules. In accordance with AIM Rule 13, the Board of the Company consider, having consulted with the Company's nominated adviser, Collins Stewart Europe Limited, the terms of the transaction to be fair and reasonable insofar as the Company's shareholders are concerned.
Commenting, Rory Macnamara, Chairman of the Board of Directors of Carpathian, said:
"The significant operating costs of managing the developments were no longer justified, particularly given the size of the associated debt drawn down against the assets and underlying property values in the region. This sale allows your board and property investment adviser to focus on maximising returns on the investment portfolio."
| Enquiries: |
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| Carpathian PLC | Via Redleaf Communications |
| Rory Macnamara (Non-executive Chairman) |
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| Carpathian Asset Management Limited | 020 7529 6413 |
| Paul Rogers Simon Killick | ir@carpathianam.com |
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| Collins Stewart Europe Limited | 020 7523 8350 |
| Bruce Garrow |
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| Redleaf Communications | 020 7566 6700 |
| Emma Kane Adam Leviton Henry Columbine | carpathian@redleafpr.com |
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| IOMA Fund and Investment Management Limited (the "Registrar") | 01624 681250 |
| Philip Scales | philips@iomafim.co.im |
Notes to Editors:
| - | Carpathian was created in 2005 for the purpose of investing in Central and Eastern European commercial real estate. |
| - | Carpathian's primary focus is on shopping centres, supermarkets and retail warehousing in Croatia, the Czech Republic, Hungary, Poland, Romania, Lithuania and Latvia. |
| - | Carpathian was admitted to trading on AIM in July 2005. |
| - | CAM is the Property Investment Adviser to Carpathian. It, together with its parent company, CPT LLP, is responsible for managing the core portfolio of assets and transactions within Central and Eastern Europe. |