MILAN — Three initial public offering postponements notwithstanding, Prada Group isn’t scrambling for a quick fix.
This story first appeared in the July 3, 2002 issue of WWD. Subscribe Today.
It’s not gearing up to sell off assets or seek fresh bank loans in a bid for cash, chief financial officer Riccardo Stilli told WWD in an interview. Additionally, the company is shrugging off concerns about its debt pile.
“The strategy is that as soon as market conditions allow, we will go ahead,” Stilli said. “The strong commitment of the company is going public.Right now, from a financial point of view, we can handle it as it is.”
Prada, which last week postponed its IPO indefinitely, is planning to stay the course, curtailing costs and investments if the downturn in the luxury goods market persists, Stilli said. Meanwhile, it is banking on an IPO by June 2005 — when Prada’s $694.4 million worth of convertible bonds mature and must be paid back if the company doesn’t go public. If there is an IPO, those bonds can be converted into shares. Dollar figures have been converted from the euro at current exchange rates.
Selling off stakes in Fendi and Byblos helped Prada reduce its net financial debt to about $843.2 million from $964.3 million at the end of 2001. Prada amassed that debt pile from a string of acquisitions including Jil Sander, Helmut Lang and Church & Co. Stilli said Prada has no current plans to sell off additional assets.
For the most part, analysts said they don’t see Prada’s debts as an urgent problem. But they did say things could take a more serious turn if poor market conditions for luxury goods persist and strain cash flow. As reported, Prada posted a lackluster first quarter, in which earnings before interest and taxes dropped 61 percent to $29.4 million from $75.2 million.
“In the longer term, it could be a problem depending on how much of a downturn there is in business,” said one London-based luxury goods analyst.
Of Prada’s $843.2 million in debt, about $248 million is short-term debt that must be paid back within the next 12 months, Stilli said, and the remaining $595.2 million over the longer term. Financing includes a syndicated loan for $248 million due in 2005 and a bond issue for $128 million that matures in June 2003.
Stilli said Prada paid $39.7 million in interest expenses in 2001 and expects to pay about $34.7 million in 2002. He added that Prada currently has no talks under way to secure additional financing from banks.
Stilli also said Prada has no current intention to shop around a minority stake in the company or seek a strategic partner in a bid for fresh funds.
Andrea Paladini, an analyst with Centrosim, said the large amount of debt does create some concerns but he noted that a private company like Prada had no choice but to fund its acquisition strategy through debt.
Prada’s cash-flow position looks adequate to cover financial costs, Paladini said, but he added that Prada “will have to plan their investments around improving the debt position. Those are the only resources they have.”
He added that Prada can probably make it on its wait-and-see attitude as long as the company doesn’t make any more acquisitions: “If they need to, they could make some small asset sales but for now, it doesn’t seem necessary.”
On top of the $843.2 million in debt, ITMD Investments BV, the holding company that controls Prada, has $694.4 million in outstanding bonds. These bonds were issued as straight debt, but can be converted into Prada shares if and when Prada takes on an IPO. If Prada doesn’t go public by June 2005, the bonds will be repaid in cash at maturity.
Stilli downplayed the possibility that another rival luxury goods player could be buying up the Prada bonds in the hopes of an eventual conversion. Earlier this year, Diego Della Valle, chairman of Tod’s, denied press reports that he was buying up Prada bonds. Della Valle is considered one of Prada chief executive officer Patrizio Bertelli’s fiercest critics in a feud stemming from Tod’s losing a bidding war with Prada to buy Church & Co.
Stilli said Prada “does not have any indication” that a competitor has purchased bonds on the market. He also stressed that even a purchase of a large quantity of bonds would translate into a relatively small equity stake in a public Prada.
“If, for example, the initial public offer were for 25 percent and someone bought all of the bonds, it would mean a maximum stake of one-fourth of the floating shares or 6.25 percent of the company,” he said, driving home the point that Bertelli and the Prada family still retain the majority of shares.