HN on the break-up of PPF and ECM

A very interesting story in yesterday’s Hospodarske noviny, which details some of the gory details in the collapse of Czech developer ECM. Its primary claim is the slide into bankruptcy began when the relationship between PPF and ECM deteriorated. Peter Kellner’s PPF had taken a 75% stake in their joint company called PPF ECM Holding, with ECM founder Milan Janku holding the remainder.

Janku’s own company ECM Real Estate Investments “never belonged to the joint company, but its method of financing was unacceptable for Kellner,” writes HN. It specifies a pair of bonds issued by ECM REI in 2006 an 2007 that brought in €54.8m but which had resulted in liabilities of €125.7m. PPF eventually refused to take part in the restructuring of these liabilities, and HN says the joint company eventually broke up over the issue.

HN writes that ECM REI issued bonds worth €25.6m in 2006 and another issuance in 2007 worth €94.52m. The problem, however, was reportedly that the second bond included a “flipping” of the first, that left the company with just €34.42m, less than 40% of its nominal value. Since it had agreed to pay a 1.25% fee along with a fixed 4% coupon on the nominal value, the entire debt rose to €137m, some of which was paid.

HN cites an internal PPF document as saying that ECM had essentially agreed to pay back 2.5 Euro for every Euro invested in the company, without creating value for its shareholders. “This is clearly economic nonsense from the beginning that contradicts proper values,” quotes HN, which was unable to secure any comments from ECM for the story.

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