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11.04.2008 - MDM Comment: Marta fails to sell its key asset

The below comment could be of interest for those looking at Russian high yield or distressed bonds.
German supermarket group REWE said it is no longer interested in buying the Grossmart food retail chain from Marta Holding, reported Russian newspaper Vedomosti today, citing an REWE press-release and statements made by one of the German company’s executives.
In our view, this is alarming news for Marta's creditors. The latter include holders of unsecured ruble bonds and a privately placed secured CLN issue. Marta Holding, which has historically developed aggressively in real estate and retail, is now facing serious difficulties in obtaining refinancing, and therefore has had to sell assets. Its most liquid asset – a stake in the listed development company RTM – was reportedly been sold earlier this year with a discount to the market price. Following that, the next asset up for sale was Grossmart. Other Marta assets are simply too small and therefore hardly saleable for any worthwhile compensation.
The Grossmart chain, with over 100 of food stores, was built up in cooperation with REWE, and therefore REWE was seen as the most likely buyer, and could have theoretically bid at the best price. The sale was reportedly in process, and it is deeply regrettable that a deal was not closed.
Because of the very poor financial disclosure from Marta, we do not have any up-to-date information on the debt position of the company, or the value and performance of Grossmart. We are simply pointing out that Marta's credit risks have now increased in the sense that it may either fail in its efforts to quickly find another buyer for Grossmart and refinance the debt, or the discount to the ‘fair’ price may be so deep that, along with high interest payments on loans and bonds, it drags the net asset value of the group into negative territory.
Marta's short-dated local bonds were trading at YTW 20-25% earlier this week. We haven't seen any pricing on the credit-linked notes issue. We would recommend avoiding any debt exposure to Marta until there is some comforting disclosure from the company.

11.04.2008 14:23
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