Parmalat verging on bankruptcy as Cayman Islands assets apparently vanish

Saturday, December 20, 2003

MILAN, Italy: The troubled Italian food giant Parmalat is expected to ask judicial authorities to grant it protection from its creditors after the apparent disappearance of billions of dollars of assets it had supposedly held in the Cayman Islands.

The company could go into liquidation in the wake of news that Bank of America (BoA) had disowned the authenticity of a document certifying that Parmalat's Cayman Islands subsidiary Bonlat Financing Corporation had US$4.9 billion of liquidity at December 31, 2002.

Bonlat and a Cayman Islands-based investment fund Epicurum have been the focus of an emergency probe into Parmalat's accounts by PriceWaterhouseCoopers, hired by the group's new management this week. 

It was Parmalat's disclosure that it has so far failed to recover over US$600 million in Epicurum that started the market slump in its share and bond prices.

Following an emergency board meeting late Friday, the firm said in statement that the board had authorized the chairman "to inform judicial authorities" and "to prepare within a short timeframe an intervention proposal adapted to the situation so as to ensure" the continued running of the company.

Analysts said the brief statement indicated the group wanted to be placed under the protection of an Italian law which sets out emergency steps for companies in crisis. It paves the way for creditors' demands to be blocked.

Many of Italy's biggest banks are exposed to Parmalat, leading to fears of a system-wide meltdown if the company were to collapse.

"The situation is absolutely bad and this is the worst news that we can have, and the market has reacted accordingly," said Luca Bacoccoli at the Caboto security house. 

Shares in Parmalat remained suspended at the end of this week.

"I don't know if the board will declare bankruptcy. Maybe this is just to tell the market what is going on, to try to understand the Bank of America statement," Bacoccoli said.

"I can't exclude at the moment that the company will go into liquidation. We are very close to bankruptcy," he said, noting that Parmalat bonds are trading at 20 percent of their nominal value.

The Parmalat management led by new chairman Enrico Bondi needs to understand the circumstances behind the BoA announcement, he said, noting that the bank's statement was given to Parmalat by the market regulator Consob.

It is unclear how Bonlat's auditor Grant Thornton used the BoA statement in March to certify the 2002 accounts, given that this US$4.9 billion of liquidity is not available to Parmalat, he said.

"The only thing that is clear is that the US$4.9 billion are not there," he said.

Centrosim analyst Andrea Paladini said Friday's Parmalat statement, while confirming what many believed about Parmalat's lack of liquidity, still came as a surprise.

"It is a confirmation of what we have heard about this supposed liquidity position - (that it is) just a fiction and is tied up to some other financial commitments," he said.

Paladini said he wanted to know the whereabouts of the rest of Bonlat's assets, which he said were US$6 billion at the end of 2002, based on accounts.

Paladini also questioned why Bank of America has only now disclosed that the March document is not authentic and told this to Grant Thornton.

Parmalat is already "technically bankrupt" and management is probably trying to seek a way of declaring this without putting Parmalat's 36,000 jobs at risk, including 7,000 in Europe, he said.

Management would want to try and protect these jobs via a US Chapter 11-style administration, rather than an immediate bankruptcy, which would damage workers and suppliers, he said.

The analysts added that the crisis is likely to spark a criminal investigation. 

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