According to Bloomberg, Orco issued new convertible bonds worth EUR 150m due in 2011. Lehman Brothers acted as the sole bookrunner, Reuters reported. No more details were provided and Orco declined to comment on the issue immediately stating that the press release will be available in a short time. On top of that Orco issued 41,651 new shares as a result of converting 41,651 convertible bonds due in 2011. Total number of outstanding shares thus increased to 8,502,953 shares. There is still 193,671 unconverted bonds in the circulation, which will be redeemed before due date on 26 March 2007.
Our view: As Orco’s leverage is one of the key concerns for the investors we see the new convertible bond issue of EUR 150m rather negative. Although it should be stressed that Orco plans to use it partly for refinancing and partly for future project. We expect the level of Orco’s debt stood at some EUR 660m at the end of the year, which implies 1.3x D/E ratio. In addition this will lead to further dilution effect in our valuation. Conversion of bonds due on 2011 is in line with previous statements of the company in order to decrease debt, supported by fact that bondholders should convert bonds because of favorable strike price of EUR 32.4 comparing to the market price of EUR 112.5.