XXI Century Announced Trading Update
OREANDA-NEWS. On 09 April 2009 wXXI Century Investments Public Limited (LSE: XXIC), one of Ukraine's leading real estate investment, development and property management companies, announced the following trading update.
The Board of XXI Century wish to advise that, since the Company's trading update of 31 October 2008, the Company continues to experience significant working capital constraints due mainly to the continued turmoil in global capital and financial markets that have also impacted Ukraine and adversely affected the Company's operations and its ability to sell its assets and raise new financing.
Cost-cutting and capital raising initiatives
To minimize its ongoing financial commitments, the Board implemented cutbacks in administrative and other expenses, including a significant reduction in personnel number and a more than 50 per cent decrease in overhead expenses between August 2008 and April 2009. The Company has closed one of its two offices and frozen most development activities and capital spending.
Since December 2007, when a contemplated secondary offering was postponed because of the rapidly deteriorating conditions in the equity markets, the Company has attempted a number of strategic initiatives to raise new financing and improve liquidity. These initiatives include the potential sale of an up to 50% stake in its shopping centre developments, sale of the new Kvadrat-Perova shopping centre, sale of its warehouse portfolio and forming аn investment vehicle with a major Ukrainian industrial group. The Company concluded memoranda of understanding with respective parties on the deals mentioned above during 2008. Backed by these ongoing transactions, XXI Century raised USD 150 million Guaranteed Secured Notes due 2011 (the "2011 Notes") in May 2008. However, due to adverse changes in the market in the second half of 2008, these initiatives have not materialized. The Company fully repaid the 2011 Notes in 3Q 2008 and has been working since then with its advisers to identify and secure strategic equity investor(s).
Simultaneously, the Company continues to negotiate selling individual assets to maintain operating liquidity. Since the last trading update, the Company sold 2480 square metres in its residential projects Capitoliy and Parus in Kyiv, 38.2 hectares in its 55.5 hectares Lisnyky suburban residential site to a number of local buyers for a total consideration of USD 5.9 million of which USD 5.4 million has been received to date as well as the uncompleted Kvadrat-Balzaka project in Kyiv for USD 2.98 million. The generated cash proceeds have been directed to honor the Company's financial obligations.
Management also conducts active negotiations with the Company's suppliers, consultants and other creditors to prolong repayment schedules on the existing indebtedness. The Board is also actively pursuing repayment of the amounts due to the Company.
In view of ongoing adverse market conditions, the Company is at a substantial risk that it may not be able to meet certain significant debt-related commitments, unless it succeeds in restructuring such payments as they become due. Of most pressing concern is the risk that holders of the Company's USD175 million 10% Guaranteed Secured Notes due 2010 (the "2010 Notes") may choose to exercise their option to require the Company to redeem their notes on or after 24 May 2009. Other substantial payments include USD 8.75 million interest payment on the 2010 Notes which is also due on 24 May 2009.
The Board recognises the severity of the current situation and has retained Renaissance Capital to advise it on exploring possible restructuring alternatives with its noteholders and to advise on other strategic options.
Strategy going forward
The Board previously adopted and announced a revised business strategy in which the Company will focus on core business segments - retail, high-end residential schemes and offices. In addition, with the help of its financial advisors, the Company has developed a tactical plan until 2014 based on an assumed recovery in the local real estate market and also in global capital and financial markets over the next five years. That plan breaks down into three phases:
Phase I "Hibernate" - retain core sites, retain core competencies, reduce costs and maintain liquidity through sale of non-core assets, restructure debt obligations and secure strategic equity investor(s);
Phase II "Gradual Recovery" - continue to sell non-core assets, reduce debt, and raise new equity / equity linked financing to restart selected developments;
Phase III "Total Recovery" - focus on increasing the number of key income generating assets, selectively build out the existing pipeline, raise financing through refinancing or sale of assets, and finalize debt repayments.
However, the Company's ability to implement its proposed tactical five year plan depends, i.a. on the approval of its investors and on the timing and rate of recovery in the local real estate markets as well as the normalisation of capital and financing markets, all of which cannot be predicted with any certainty in the medium to long term.
The management of the Company will be available to explain and discuss the aforementioned during a market update call on Tuesday 31 March at 1pm the UK time. Dial in details for qualified investors are as follows: +44 (0)20 7138 0822.
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