FairPlay ($6F3:BU) Special Shareholders’ Meeting

In my post on FairPlay ($6F3:BU), I mentioned the coming special shareholders’ meeting.  It was postponed from 6th to 10th December and proceeded uneventfully.  Both resolutions passed.

The company will be issuing debt of 3 million Euro.  It’s anyone’s guess whether it will be used to replace some of the 6 million Euro bank debt coming due early next year or to finance development of some of its projects.

When I read the second resolution, I realized that I have misread their filing before the meeting.  It turns out the vote to change the share and debt issuance authority to BGN 50 million over the next 5 years was necessitates because of the expiration of the previous 5-year capital issuance authority.  Moreover, it actually reduces the prior limit which was BGN 200 million.  More importantly, it was a vote on the authority to issue capital in the next 5 years and not on an actual capital issue.  I guess I was so concerned with the debt wall that I assumed they will need to raise both equity and debt capital.  So far, it is only BGN 6 million of debt.

This doesn’t completely invalidate my concern about dilution.  The lower limit could signal the market that the company doesn’t intend to raise as much capital as it envisioned it may need before the crisis.  Still, BGN 50 million is almost double the current capital in the company (at par).  In this case, limiting the issuance authority is a non-event.

In the first quarter of 2013, we will find out if and how the maturing bank loans will be refinanced.  But, assuming the banks agree with FairPlay that the collateral has not been significantly impaired, it shouldn’t be a problem to refinance the loans.

The last piece of mixed news is the dividend.  It won’t meet the CEO’s midyear forecast of BGN 0.06, but it is expected to be BGN 0.04.  That’s a third less than the optimistic forecast, but it still makes for a 15% yield.  Not too shabby.  Will it be sustained?

So far this year, the company has signed 107 sales contracts in its 3 major properties – St. Marina, St. Ivan, and Marina Hill.  The trend has been quite negative since 2008: 205, 161, 164, 136.  Bulgarian resorts are not that hot anymore and probably prices have to fall to attract buyers – something the company is not willing to do as it will affect both its margins and the luxury image of its properties.

I will wait for the annual report.  By that time, there will probably also be some clarity on the debt situation.