Ruric board to offer debt-to-equity conversion proposal to bondholders

By Caroline Salls

Pittsburgh, July 16 - Russian Real Estate Investment Co. AB (Ruric)'s board of directors will make a bond conversion offer to holders of up to SEK 682.77 million of the company's 10% and 13% bonds due Nov. 16, 2014, according to a news release.

According to the release, Ruric has long-term difficulties in servicing the bond debt out of cash flow from operations because of lower liquidity in the Saint Petersburg real estate market in general and "project properties" in particular.

In addition, the company said the euro crisis and global credit shortage has led to an almost complete closure of financing for development and purchase of real estate objects.

Ruric said the risk for cancellation of project properties agreements is increasing as a result of funding constraints, and the lack of funding makes it difficult to fulfill investment agreement development obligations.

Proposal terms

Under the proposal to bondholders, 100% of the bonds would be converted into the shares of the company.

Specifically, the bonds would be converted into shares at face value at the price of SEK 3.60 per share, which is equal to a 50% discount on the face value of the bond and the average price of SEK 1.85 per share for the six months ended June 4;

If accepted by bondholders, the conversion will result in 156.5 million new shares.

Ruric said it currently has 104.1 million shares. Current bondholders would control 60% of the share capital if the deal is successful.

The company said the conversion would resolve its long-term financing difficulties.

According to the release, Ruric will continue with a restructuring designed to decrease exposure on development projects and instead build up a cash-flow generating asset base.

This will enable Ruric to service a regular dividend payout, the release said.

Ruric's board said it will develop a business and financing plan to attract investment banking and property advisory professionals.

The date for written procedures and last day to respond to the proposal is Aug. 3.

The real estate company is based in St. Petersburg, Russia.

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