SVS head blames La Polar's board, PwC for financial scandal

- Thursday, June 23, 2011

SVS head blames La Polar's board, PwC for financial scandal

Chilean securities and insurance regulator SVS's head, Fernando Coloma, blamed retailer La Polar's board, as well as auditing firm PwC, for the financial scandal that was unveiled two weeks ago.

Speaking at a hearing of a special committee set up by the lower house last week to look into scandal, Coloma said that by law the board is the entity responsible for providing "truthful and on-time information" to regulators, while external auditing firms must validate this information.

On June 9, the retailer announced that it may have to set aside as much as 200bn pesos (US$430mn) in provisions for bad loans in its credit card portfolio and that it would restructure its management. But then on June 17, the retailer hiked that estimate to 538bn pesos, a press release from congress reads.

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Coloma said that it was "unthinkable" - as it would trample economic development - for a regulator to go to each company to validate and confirm information that is provided by its board. It is external auditing firms' job to provide information that the regulator can trust.

PENSIONS REGULATOR HEAD SPEAKS

During the same hearing, the head of pensions regulator SP, Solange Berstein, said her institution was "extremely worried" about the case, considering that the country's six private pension fund managers (AFPs) are La Polar's largest shareholders, owning a combined 27% stake as of end-April.

Berstein noted that the impact on the AFPs' total assets under management (AUM) was not significant, given the ample diversification of these investments.

The SP head said that only 0.46% of the AFPs' AUM was invested in La Polar's shares and bonds, totaling some US$700mn.

The committee also voted to issue a report to SVS asking the regulator to strike off its records PwC's authorization to operate as a registered auditing firm. The committee will convene again on July 6, a press release from congress reads.

LA POLAR CAPITAL INCREASE

On Wednesday (Jun 22), La Polar's stockholders agreed to increase the company's capital by 100bn pesos, or up to 250mn shares, after an extraordinary shareholders meeting headed by the newly appointed chairman, César Barros.

In a research note, local financial services firm Celfin said the 100bn pesos "could be enough to guarantee the near-term sustainability of the company - subject, of course, to the outcome of negotiations with debt holders."

The capital increase is subject to several conditions such as an agreement with debt holders (both banks and bondholders), setting new terms for the debt, the freezing of the retailer's expansion plan into Colombia, no management compensation and the presentation of preliminary figures on the potential recovery of the provisioned debt.

"Through the approval, near-term survival of the company has been secured. However, we maintain the view that it is still too early to assess the value creation potential of the company in the long term," Celfin analyst Bárbara Angerstein wrote.

At local stock exchange BCS, La Polar's stock closed Thursday's trading up 18.2% to 632 pesos per share from Wednesday's close.