Polish developer rejects claim of 'bankruptcy risk'

Warsaw-listed developer Echo Investments has challenged a suggestion it is among a large group of Polish companies at risk of being crushed by the credit crunch.

In a terse statement issued on Friday, Echo said that the firm and its subsidiaries were 'entirely capable' of funding the current investment projects.

'Echo Capital Group's liquidity ratios and debt ratios remain stable, primarily due to the corporate investment funding policy and liquidity loss risk management policy.' Echo added that its credibility on the financial market was illustrated by the diversified structure of banks financing the operations of the entire group.

The statement was a response to an article entitled 'The High-Risk Zone is Expanding. Kolaja & Partners pinpoints companies in danger' which was published by Polish business daily Puls Biznesu on 22 October. The article cited a report which used Edward I. Altman's Z-score formula for predicting bankruptcy to suggest Echo and a large number of other Polish companies from various sectors were at risk due to the ongoing global financial crisis.

Echo emphasised that the article stated that the applied methodology was not suitable for assessing Echo Investment: 'Echo Investment is an example of a company for which Altman's Z-score does not work properly. This developer earns most of its profits through restatement of the value of its property portfolio, which depends on the adopted investment cycle.'

The Polish developer cited the opinions of analysts which were at odds with the assessment. For instance Marcin Przasnyski, editor of StockWatch.pl and a student of Altman's from 2005 to 2007, wrote: 'Altman's Z-score should not be applied to Polish companies because it has been developed on the basis of data from developed markets, specifically the US market, and adapted to their specific conditions. Furthermore, it is only relevant for production companies, which Echo Investment is not,' Przasnyski said.

Arkadiusz Chojnacki, an analyst covering Echo Investment, added: 'In the specific case of Echo, I can see no threats to its liquidity at the moment, primarily due to its good cash standing and stable cash flows on property lease. We also should not forget that the company finances its operations with short-term loans to a minor extent while using mainly long-term loans and bonds instead.'