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16-11-2023 : Orpea and South Korea

No, Orpéa has not discovered that it owns retirement homes in South Korea! (although it does operate some in Brazil, Uruguay and China). The link between the two is through short-selling.

In response to our previous post, some people wondered why short sales weren't taking place to bring Orpéa's share price down to a level more in line with economic and financial rationality.

Well, to be able to sell short, you need to be able to borrow shares, which you don't have because you want to sell short, from investors who do. In a normal situation, this is possible because there are institutional shareholders in the capital who agree to lend their shares for a while and receive interest in return. But in the case of Orpéa, with a share price that has long exceeded all rationality, the institutional investors, who know how to count, have sold their shares and the bulk of the shareholders are individuals. These individuals do not have access to securities lending services and often hold a number of shares that are too small for this. Furthermore, banks are prohibited from lending the securities of their individual clients, which considerably reduces the number of securities that can be lent.

So, de facto, it is very difficult to sell Orpéa shares short, as there is no possibility of securities lending. This also explains why its share price has been so irrational for so long. Even if they are often unloved, short sellers have an economic role to play in contributing to market efficiency in the case of overvalued securities, as Orpéa's situation demonstrates a contrario. But like everyone else, they can also make mistakes, and usually at great cost to them. 

In South Korea, the stock market regulator has banned short selling from 6 November to the end of June 2024, officially to strike a balance between retail investors, who cannot sell short, and institutional investors, who can. On the day this measure came into force, the Korean index gained 4.5% during the day, with Korean investors thinking that without these short-sellers getting in the way, stock prices were more likely to rise, and this was immediately anticipated in stock prices. It is also said that with the general elections taking place in April, and with 14m of the 52m Koreans investing in the stock market, the measure was primarily electorally motivated. For those politicians wishing to follow the Korean example, it should be noted that a week later, the Korean index had risen by just 1.5%. And in the United States, where the measure was taken during the 2008 financial crisis on bank stocks for 15 days, the measure did nothing to stabilise prices, leading to the abandonment of the ban on short selling. 


14-11-2023 : Is Orpea worth as much as TotalEnergies?

Of course not! But that's what we're seeing on the Paris stock exchange, where investors regularly buy shares at around €1 a share, for around €4 million a day, or around 6% of the capital that turns over every day.

There are currently around 65 million Orpéa shares. In a press release dated 11 October, Orpéa announced, in accordance with the safeguard plan approved by the commercial court and against which appeals have failed, three capital increases to transform unsecured debt into equity for €3.9bn and to provide liquidity of €1.55bn, all of which will enable the company to adapt its financial structure to its ability to generate cash flow enabling it to get back on a sound footing. In doing so, Orpéa will issue around 159 billion (sic) shares, resulting in a dilution of 99.96% of current shareholders, since the new shares will be issued at prices ranging from €0.0133 to €0.06.

The reason for this is that the entreprise value of Orpéa’s is less than the amount of debt to be repaid, so the value of shareholders' equity is zero. 

To value Orpéa's shares at one euro today is to believe that the company could reasonably be worth €159 billion, or as much as TotalEnergies ... . 

 It is sad to see, when Orpéa has clearly indicated for months that its shares were massively overvalued, and again on 11 October ("These capital increases will result in massive dilution of existing shareholders and could lead to a significant fall in the share price, with the value of the share after operations possibly being less than €0.02"), that some investors are still completely deluding themselves. Those who have held on to their Orpéa shares since 2022, and who have already lost 90% of their assets invested in Orpéa, will lose a further 98%. And it's sad for us educationalists to see that reason, which is shining through here, has been unable to assert itself for months on this topic where only passion and illusion reign.



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The Letter

Number 152 of October 2023

News : Round table: How are companies reacting to inflation?

Statistics : Operating risk and debt level

Research : Are mutual fund customers really smart?

Q&A : Recalculation of NPV and IRR during the investment period

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