Moody’s downgraded Orco to Baa3.cz from A3.cz due to Orco’s citing increased exposure to more mature western markets after the acquisition of Viterra and its impact on Orco’s financials, refinancing risk arising from rating trigger coming from the issue of bonds worth CZK1.5bn based on existing covenants and a increase in gearing to 58% in the 1H06 from 49% at the end of 2005. Moody’s also cities current weak cash-flow and aggressive acquisition strategy.
Our view:
Obviously, the lower rating is not positive for Orco in terms of increased financing costs, which are vital in the real estate business. Following the latest acquisitions and in particular the Vienna hotel in Poland, we would like to see Orco disposing some of its assets to show its execution ability and consolidation of existing projects before making more acquisition.