Empresas La Polar SA (LAPOLAR) is seeking to
avert a second bankruptcy in 12 years by selling shares worth
almost twice the Chilean retailer’s market value after loan
losses triggered an 80 percent tumble in less than two weeks.

La Polar shareholders are scheduled to vote today on the
sale of as much as $400 million in new shares that may provide a
way for an investor to buy a controlling stake.

“The new share sale will give La Polar more options to
solve its problems, but it won’t mean the end of all of them,”
said German Guerrero, who helps manage about $1 billion,
including La Polar securities, as director of MBI Inversiones in
Santiago. “It could open the door for a partner to acquire
control or for current holders to bolster the company.”

La Polar has lost $1 billion in market value, and bond
yields have soared since June 9, when it unveiled consumer-
lending irregularities that require additional charges,
triggering regulatory and criminal investigations. The company
announced the plan to sell shares to fund expansion plans and
“strengthen capital” last month, and in a statement last week
said it plans to proceed with the sale.

“Pension funds are expected to ask for tough conditions to
approve the share sale,” said Jose Hassi, who helps manage $500
million as chief executive officer of Penta Administradora
General de Fondos SA in Santiago. “The capital increase is
extremely important for the company and even more important is
that it will be the way for somebody, hopefully a strong
retailer, to acquire control.”

Overdue Loans

La Polar said executives restructured 475 billion pesos ($1
billion) of overdue credit without getting the consent of the
more than 400,000 customers involved or informing the board.
Responding to a regulatory request, La Polar said June 17 that
it faces additional provisions of 420 billion pesos, compared
with an initial 200 billion-peso forecast.

La Polar said it may have to set aside a total of 538
billion pesos, including previously recorded charges. The
revised total is more than 10 times last year’s earnings before
interest, taxes, depreciation, and amortization, according to
Bloomberg data.

The shares closed yesterday at 467.26 pesos in Santiago
trading for a market value of 116 billion pesos compared with
581 billion pesos on June 8.

The yield on La Polar’s 2016 inflation-index bond fell
yesterday to 30 percent from 37.6 percent on June 20, according
to data from the Santiago stock exchange. Before the
irregularities were announced, the bond traded at a yield of
3.87 percent.

Bankruptcy Risk

“There is a risk of bankruptcy,” said Raul Montero, a
partner at law firm Alessandri Cia in an e-mailed response to
questions.

Chilean law allows a company to continue operating and be
sold as a whole within two years of declaring bankruptcy,
Montero said.

La Polar declared bankruptcy in 1999 before the retailer
was acquired by private equity firm Southern Cross Group.
Southern Cross listed the company’s shares in 2003 and sold its
remaining stake in 2006. Today La Polar has no clear controlling
shareholder as all of its shares trade freely.

Chilean pension funds, known as AFPs, requested a freeze of
La Polar’s expansion plans, an end to executive stock options
and clarification on what the money will be used for as
conditions to approving the share sale, financial daily Diario
Financiero reported yesterday, citing people familiar with the
negotiations that it did not identify.

Public relations executives at AFP Planvital SA and the
Chilean AFP association didn’t respond to telephone messages
seeking comment. AFP Cuprum SA declined to comment in an e-
mailed response. AFP Capital SA, a unit of ING Groep NV, said by
e-mail that it had no information on the subject.

New Chairman

Heriberto Urzua, who replaced Pablo Alcalde as chairman
last week after the irregularities were unveiled, stepped down
from the position, he said in a June 20 e-mailed statement.

Urzua was replaced by Cesar Barros, who as head of Chile’s
salmon exporters association led negotiations to restructure
farmers’ bank debt after a virus outbreak decimated fish stocks.

“The fundamental impact of La Polar’s financial event and
disaster is relatively internalized in the economy in the sense
that it caused damage to clients, it caused damage to
investors,” central bank President Jose De Gregorio told
reporters yesterday in Santiago. “There was an impact on
overall confidence.”

De Gregorio called for better consumer and investor
protection after the case exposed shortcomings in regulations
and oversight.

Bond Covenants

La Polar hired Larrain Vial SA to devise a plan for
extending maturities on bank loans and waiving bond covenants.
The company will meet with bondholders July 29. Deloitte Touche
Tohmatsu is auditing the credit portfolio and may have a final
provisions figure in three months, the company said June 13.

“Subject to the plan’s success, we can look with optimism
at the viability of the company,” it wrote.

The Chilean unit of Fitch Ratings Ltd. and Feller Rate, an
affiliate of Standard Poor’s, cut their ratings June 17 for La
Polar’s debt to “C” from “BB” and “BB+,” respectively.

La Polar operates 43 stores in Chile and opened its first
store in Colombia this year. The company planned to invest $250
million between 2012 and 2015 to open 10 stores in Colombia and
eight in Chile, Alcalde said May 3.

To contact the reporter on this story:
Eduardo Thomson in Santiago at
ethomson1@bloomberg.net

To contact the editor responsible for this story:
David Papadopoulos at
papadopoulos@bloomberg.net