SeznamZpravy asked DRFG founder David Rusňak about his company’s business at a time of growing concern over the viability of bond-financed real estate investors. He said the company had recent completed and sold off its first residential project and was close to completing another in Mladá Boleslav. Rusňak admitted that sales have gone slower than planned. On another two projects in Brno and Olomouc, he revealed the company is “waiting for the right moment” to begin construction.
Asked point-blank if the group’s returns were higher than its cost of capital, he said DRFG never goes into any project with an IRR of less than 20%. “We’re working actively with most of the banks on the Czech market and with banks in Slovakia, Poland, Germany and Switzerland,” he continued. “That of course greatly reduces the expenses for individual projects and at the same time reduces the risk for these projects, and for our investors, because no bank would go into a project whose risks were unacceptably high.”
Its most recent financial numbers reveal that DRFG has CZK 6.9 billion in outstanding bonds, of which CZK 1.5 billion comes due within a year. “Our current ratio of equity to total assets is around 15%,” he told SZ. “Part of our financial strategy is to strengthen that number. But it can’t be done all in one go. The only way to increase your equity is to create profits and not distribute them.” DRFG’s goal is to reach 20% within three years. The average interest rate it’s paying bondholders is 6.5%, but SZ writes that bond management and commission eat up another 1.7%.
SZ used the interview to ask the boss about the level of guarantees DRFG provides and about its practice of issuing bonds through newly-created companies. Rusňak said the latter practice is not only cheaper and quicker, but is fully in line with Czech legislation. “All of the issuing companies from the group lend to the mother company DRFG Investment Group and it then lends to the project companies,” he explained. “That’s standard practice used by all issuers with a CNB-approved prospectus. Nevertheless, having successfully completed the merger process and transitioned to IFRS, we’re preparing an entirely new prospectus that will not only contain the consolidated numbers in IFRS format but also a guarantee from the mother company DRFG Investment Group.”
