Spain’s Biggest Bankruptcy Ever Hits Banks, Mexico, Brazil, Descends into Bitter Farce

 

by Don Quijones • December 15, 2015

“Negative profits were being converted into positives.”

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Abengoa, the Spanish renewables giant that once thought it had mastered the dark arts of financialization only to crumble under the weight of its own debt, urgently needs a lifeline. In November, it filed for preliminary protection from creditors. If it doesn’t get a lifeline, it will be go down in history as Spain’s biggest bankruptcy ever.
According to the latest accounts, its creditors may have thrown it that lifeline, but barely enough to last through the very inconvenient general elections this Sunday and the holidays, when the government is off.

A Last Minute Stay

Amazing as it seems for a publicly traded company, there’s still “no official figure for the firm’s total financial liabilities,” Reuters reported, though “separate sources familiar with the matter say they total at least €25 billion.”
The banks on the hook for about 80% of that debt include Spain’s Santander, Caixabank, Bankia, Banco Sabadell and Banco Popular; France’s Credit Agricole, Société Generale and Natixis; London-based HSBC and the US behemoths Bank of America and Citi. These banks could have a big problem on their hands, especially since the Spanish government is currently powerless to intervene.
In normal circumstances, finding a few hundred million euros to help out a domestic company in need — especially one that is estimated to owe national and international banks and investors €25 billion — would be routine, particularly when Mario Draghi is conjuring up €60 billion of QE funny money each month.
But these are not normal circumstances. The general elections this Sunday are so tight they’re impossible to call. And just before the election is certainly not the time for the government, which has been preaching austerity to the regular people, to be bailing out yet another big company.
Instead, the banks have stepped in with an offer of €210 million so that Abengoa can pay salaries and maintain current operations, at least until the next round of negotiations. This temporary stay of execution keeps the company alive for a few more weeks and certainly past the elections on Sunday; it helps the government avoid the Dickensian sight just before the elections of tens of thousands of global workers, including 6,000 in Spain’s southern province of Andalusia, where the unemployment rate is 31%, going unpaid.

Shifting the Pain

In other parts of the world, the fallout is already being felt. In Brazil, 2,300 Abengoa workers – 42.5% of the workforce – have been laid off. According to some reports, Abengoa intends to keep on only  400 of its 5,400 employees in the country.
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