Well, well, what do you know: Paramalat’s real debt is much bigger than was first thought. What a surprise. According to the Financial Times Parmalat’s gross debt now stands between ?14.5bn and ?14.8bn ($18.08bn-$18.46bn). At the same time its main Italian operations barely made a gross operating profit last year. Meantime Italy’s unions are threatening a strike iif the government reduces the regulatory role of the central bank. The dispute has arisen as a result of the Parmalat scandal, which the government blames partly on a failure of oversight at the central bank. As a solution the finance ministry wants to reform financial market regulation in Italy so that the central bank would no longer supervise corporate bond issuance and competition in Italy’s banking sector. The unions object to this.
Actually this was meant to be a quick post, but while writing it I cannot help reaching the conclusion that Italy may be begining to fall apart. Just wait till you read this.
The struggle has coincided with a dispute over the euro that is adding to strains inside the ruling four-party coalition and threatening to turn into a campaign issue as Italians prepare to vote in local and European parliament elections this year.
Silvio Berlusconi, prime minister, last week told reporters it was undeniable that the euro’s introduction in 1999 had contributed to higher inflation in Italy.
At a weekend rally of his populist Northern League, Umberto Bossi, minister for reforms, went further and poured scorn on Europe’s single currency, saying: “The euro isn’t loved by the people a – it’s loved by the freemasons who wanted it and imposed it [on Italy].”
Among those springing to the euro’s defence were Romano Prodi, the European Commission president, who is tipped to lead the centre-left opposition in Italy’s next national election, due by 2006, and Carlo Azeglio Ciampi, Italy’s head of state.
The dispute recalled an episode in January 2002 when Renato Ruggiero resigned as Mr Berlusconi’s foreign minister in protest at the hostility of some fellow ministers towards the euro.
Rocco Buttiglione, minister for European affairs and a member of the centrist Democratic Union of the Centre (UDC), had harsh words on Monday for Mr Bossi. Commenting on the prospects for a relaunch of the government’s programme, he said: “In the last few days nothing has changed except that Bossi has heaped insults on us.”
Source: Financial Times
So what started off as a mere Enron-scale scandal (in a country which itself is almost bankrupt, see my earlier post) has now tipped over into a dispute which threatens the independence of the central bank (in a country where corruption is widespread, who exactly is expected to oversee whom?). Then in order that the milk can really boil over in the pan, the running sore of Mediterranean fringe inflation (again see this yesterday) spills into a generalised dispute along party lines about the euro, with the minister of ‘reforms’ making declarations reminiscent of the Mussolini/Franco era. What a mess!
Now back to the Parmalat details.
PwC, the accounting firm brought in to sift through the bankrupt dairy group’s accounts, on Monday said Parmalat’s net debt stood at ?14.3bn at the end of September. But debt was now slightly higher because of cash requirements, the Financial Times was told.
PwC also slashed Parmalat’s previous results for 2002 and the first nine months of 2003 after uncovering numerous cases of false billing, false financial gains and false transactions claimed by previous management.
Nine-month 2003 earnings before interest, taxes, depreciation and amortisation (ebitda) totalled ?121m, against ?651m declared earlier. Revenues were reduced by 26 per cent from ?5.38bn to ?4bn. Parmalat had claimed net debt of ?1.82bn, thanks to a purported cash hoard of ?4.2bn and stated debt of ?6bn.
The cash evaporated last month when it emerged that the group had faked statements and faxes with Bank of America letterheads, claiming it had ?3.95bn in a BofA account at the end of 2002 and ?4.4bn at the end of June.
PwC said liquid assets at the end of 2002 and up to September 30 2003 were “negligible”.
Unless investigators recover cash that may have been hidden by Calisto Tanzi, Parmalat founder and main shareholder, or other executives, Parmalat’s net debt will equal its gross debt.
Parmalat’s 2002 revenues were restated down from ?7.7bn to ?6.2bn, while ebitda stood at ?286m, down from the ?931m stated by Mr Tanzi’s management team. Mr Tanzi and Fausto Tonna, former chief financial officer, are among 11 people arrested since Italian magistrates opened a probe last month.
Under Enrico Bondi, Parmalat’s government-appointed administrator, the group has managed to stabilise revenues and cash flow at its large Italian and North American operations, according to one person.
However, Brazil, which once accounted for nearly a quarter of revenues before the depreciation of the real, continues to bleed cash. In Italy, Parmalat’s overall food operations probably have ebitda of ?50m-?60m, another person said. North American operations, in particular in Canada, also make a small profit.
The marginal gross operating profit could fuel hope that part of Parmalat could be kept running and that creditors could be willing to swap their debt for shares in a renewed and restructured group, observers said.
Mr Bondi, who is being assisted by Lazard and Mediobanca, is not expected to present a plan to creditors before March.
Parmalat said PwC’s work was “still in progress” and that Monday’s figures were “not final and are subject to change”.
Source: Financial Times