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Is this Austrian real estate company a canary in the coalmine?

Trolling the web today as is my wont, I happened across an interesting article about the Austrian property finance company Immofinanz based in Vienna.  It seems that Immofinanz got caught up in the Eastern European property market.  Unfortunately, its investments have not worked out and it was forced to report a half-year loss of 1.85 billion euros.

Is Immofinanz a canary in the coalmine for Eurozone financial services exposure to Eastern Europe?  I certainly believe so as I indicated in my ten predictions for 2009.

Here is my translation of what Austrian daily Kurier had to say:

Immofinanz Group, a listed company, was forced to book dramatic losses in the first half of fiscal 2008/09 (closing at the end of October). This was due to expensive writedowns on its real estate portfolio and writedowns on shareholdings. Even development projects had to be stopped. The bulk of the burden came from the Eastern European subsidiary Immoeast. Furthermore, the financial result deteriorated even further.

The operating loss (EBIT) of Immofinanz AG in the first half year came to 1.85 billion euros, compared with a profit of 431.6 million euros in the first six months of the previous fiscal year. The company announced on Monday that the pre-tax loss (EBT) came to 2.65 billion euros. As reported, 1.86 billion euros of this total came from Immoeast alone.

Revenue rose in the first half by 14.1 percent from 318.8 million to 363.7 million euros. EBITDA rose by 5.9 percent from 148.1 million to 156.9 million euros. Restructuring negotiations with [lender] banks are ongoing, where [discussions] are primarily about new financing.

The new management led by CEO Thomas Kleibl and Chief Financial Officer Eduard Zehetner is confident that the banks will grant the necessary credit lines in order to implement the restructuring program. In order to stabilize the situation, it will be necessary to make a “comprehensive reappraisal” of Immofinanz’s past finances. This will include, in particular, cleaning up any economically detrimental and potentially illegal financial transactions. All investigations by the authorities will be supported.

In order to create short-term liquidity, real estate has already been sold. Since the beginning of the second quarter and up to mid-December 2008, 160.5 million euros of real estate was sold.

I see this story as the tip of the iceberg.  One should expect to hear of similar misadventures in Eastern Europe going forward.  Immofinanz’s shares traded at over 12 euros in May.  The last quote I saw was for 49 cents.

Sources
Grauenvolles Halbjahr für Immofinanz – Kurier, Austria
Immofinanz meldet Rekordverlust – Financial Times Deutschland
Immofinanz: Ein Fall für den Staatsanwalt – Kurier, Austria
Immoeast mit einer Milliarde belastet – Kurier, Austria
Immofinanz AG (Vienna Stock Exchange) – Reuters

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. bena gyerek says:

    erste, rzb and unicredit would be the main ones to watch