Reuters
Parmalat $5 Billion Scandal Widens
Monday December 22, 3:28 pm ET
By William Schomberg and Alberto Sisto
MILAN/ROME (Reuters) - A four billion euro ($5 billion) accounting scandal at Parmalat deepened on Monday when the Italian food group's founder and three former finance directors were targeted in a criminal probe.
As prosecutors sought to unravel a complex web of financial transactions that have led Parmalat to be called Europe's Enron, a rescue management team was weighing up the best option for bankruptcy protection.
Parmalat exploded into one of Europe's worst corporate crises last week when the firm said a document showing 3.95 billion euros held by a Cayman Islands unit, Bonlat Financing Corp, had been declared false by Bank of America.
Prosecutors launched a fraud probe, and on Monday named in their investigation Parmalat's founder Calisto Tanzi, who resigned last week as chairman and CEO of Italy's biggest food group, a judicial source said.
Also targeted in the probe into possible false accounting, fraud and market rigging were former chief financial officers Fausto Tonna, Alberto Ferraris and Luciano Del Soldato, all of whom held the post during 2003, other judicial sources said.
Ferraris and Del Soldato were questioned on Monday. They admitted providing false information but said the plan had been thought up by Tanzi and Tonna, one of the sources told Reuters.
Parmalat has 35,000 staff in 30 countries and is one of Italy's best-known brands and its eighth-largest industrial group.
The missing four billion euros dwarfs a one billion euro accounting scandal at Dutch retailer Ahold and drew comparisons with the collapse of energy giant Enron.
Media reports said the hole could be as big as 10 billion euros, making it one of Europe's biggest accounting scandals.
CABINET DECREE?
Prime Minister Silvio Berlusconi vowed on Saturday his government would save operations and jobs at Parmalat.
On Monday, Parmalat's newly appointed Chairman and CEO Enrico Bondi met Industry Minister Antonio Marzano. The minister may be required to name administrators for Parmalat.
A statement from Berlusconi's office after the meeting suggested that his cabinet could approve on Tuesday a decree dealing with the Parmalat crisis.
Earlier, financial sources said a government decree could shield Bondi and his team from any legal action while they attempt a turnaround, similar to U.S. Chapter 11.
Parmalat officials were not available for comment.
On Saturday, police took documents from Bonlat auditor Grant Thornton and Parmalat's main auditor Deloitte & Touche.
Bondi's rescue team on Monday was locked in talks with bankers and legal advisers on how to keep the group afloat.
"Bondi wants as much flexibility as possible for what needs to be done to the business," said a source close to the matter.
KEEPING PARMALAT AFLOAT
Parmalat owes Italian dairy farmers about 120 million euros ($149 million) and has not paid for milk supplies since August, the farmers' group Confagricoltura said.
Parmalat's 6.125 percent euro-denominated bond traded at about 25 percent of face value on Monday, traders said, up from as low as 20 percent earlier. Parmalat stock slumped another 66 percent to 0.11 euros, barely one-tenth of its face value.
Shares in Italian banks that made loans to Parmalat also fell, led by Capitalia, which lost six percent. Other blue-chip names like Fiat also suffered on concern about Italian companies with high debts.
"There is a general crisis of credibility and trust in the Italian financial system," said an equities trader in Milan.
U.S. banks are also believed to have big loans to Parmalat. Ratings agency Standard & Poor's said Bank of America's "on and off-balance sheet exposures to the Parmalat group are significant but manageable" given the bank's huge resources.
Concern about Parmalat's opaque investment strategy gave way to fears of a default on up to seven billion euros of bonds as the group failed to find the cash to repay a 150 million euro debt issue on time earlier this month. That was despite showing 4.2 billion euros of liquidity on its books.
Parmalat faced a Monday deadline for a second instalment of a $400 million payment to buy out investors in a Brazilian unit. Parmalat said talks to delay the payout were continuing.
It missed payment on a first instalment last week, prompting a credit rating downgrade to default grade by Standard & Poor's. |
