UPDATE 2-Chile La Polar eyes $890 mln to cover bad credit
* Retailer renegotiated customers' debt without consent
* Company eyes $400 mln new shares, extending bank debts
* Stock lost 40 percent before regulators intervened
* Government launching criminal probe (Updates with latest stock moves, details from filing)
SANTIAGO, June 17 (Reuters) - Chilean retailer La Polar LAP.SN estimated on Friday that it would need to set aside an extra $890 million, twice original estimates, to cover potential losses due to mishandling of customer debt.
La Polar said in a statement to Chile's market regulator that it would propose a capital increase for up to $400 million at a shareholder meeting on June 22. The company is also looking to restructure its bank debt and request that bondholders waive clauses that could trigger immediate repayment of the securities.
The company had previously said it might have to increase provisions by as much as $425 million. La Polar stock plunged nearly 40 percent before regulators halted trading this week.
Finance Minister Felipe Larrain said on Thursday the government was launching a criminal probe into the company's accounting and lending practices that came to light last week. [ID:nN16213323]
La Polar's challenges are the first sign of strains in Chile's demand-driven economic boom, which has pushed a red-hot retail sector to compete for customers with tempting credit offers amid record-low interest rates.
The company said this week it would reduce interest and fines for customers whose unpaid debt was restructured without their consent when they fell behind on payments.
In Friday's filing the retailer said it had unilaterally renegotiated terms for more than 400,000 customers with years-old outstanding debts averaging over $2,000 each. La Polar said an independent audit will take up to three months.
Shares of fellow retailers have suffered for the past week on concerns of increased regulation of customer credit, and a rebound on Friday lost steam after La Polar's filing.
Leading retailers Falabella FAL.SN and Cencosud CEN.SN have lost 13 percent and 7 percent respectively since the scandal broke last week. Rival chain Hites HIT.SN, which like La Polar targets lower-income consumers, has lost 22 percent over the same period. (Reporting by Brad Haynes and Antonio de la Jara; Editing by Simon Gardner and Gerald E. McCormick)