Abengoa fails to renew and files for bankruptcy

February 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Spain’s largest renewable energy company, Abengoa, is on the verge of becoming the largest ever company to file for bankruptcy in the country following the collapse of a major investment deal.

The Seville-based engineering and renewable energy giant, which has biofuel and solar-heated power plants in the United States, has been struggling for a year with high debts for some time and has been attempting to find new investors since August last year.

At that stage the situation was becoming unsustainable, as the company, which employs around 24,000 people worldwide, had cut its 2015 targets and stepped up an asset sales plan; only to then announce a share issue – a €650m rights issue of new shares to cut gross debt of some €8.9bn – days later.

Then in November, Abengoa initiated insolvency proceedings after failing to close a deal with a major new investor, Gonvarri, a unit of the privately-held industrial group Gestamp. Gonvarri backed away from a plan to inject around €350m into Abengoa – an investment that was conditional on banks underwriting the issue and it had asked the banks to inject €1.5bn into the company. Earlier that month, Abengoa’s auditor, Deloitte, advised that Abengoa faced significant risks and its future depended heavily on the proposed investment deal with Gonvarri.

Since then, the company’s market value has tumbled by around 85 percent, hit by uncertainties over whether creditor banks would agree to back the issue. On one particular day, shares closed down 54 percent, which wiped out around €470m in market value. Bonds also lost most of their value and are virtually worthless. By way of an additional reproach, the stock market operator stated that Abengoa would be removed from Spain’s blue-chip index Ibex as of 27 November.

Spanish and international banks’ total exposure to Abengoa stands at around €20.2bn ($21.4bn), including financing for projects across the globe (these include concessions to build and operate 6300 kilometres of transmission lines in Brazil). Although Abengoa has not specifically commented on this particular aspect of its current difficulties, it is thought that the company will stop all projects that are not yet operational and that require additional investment.

Despite this, according to a report by Andalucia Informacion, a website for a newspaper chain in southern Spain, Abengoa Bioenergy (Abengoa’s US biofuels unit) plans to shut down its Chesterfield office that houses its US headquarters. Furthermore, although publicly stating after its filing that they would continue to operate, Abengoa has already shut down its two Kansas ethanol plants (in Colwich and Hugoton) according to local officials.

“The company will begin the negotiating process with its creditors with the aim to reach an accord to guarantee the financial viability under the Article 5 of the Bankruptcy act, which the company intends to request as soon as possible,” Abengoa said in a statement.

In December, Abengoa announced that it needed €100m to pay salaries by the middle of the month and to keep its business running. Furthermore, the company stated that it needed up to another €350m in extra cash to stay afloat over the next four months – the maximum time allowed to renegotiate its debt under Spanish law. Abengoa therefore has until the end of March to reach an agreement with creditors to avoid a full-blown insolvency process and a potential bankruptcy.

For Abengoa, time is running out. The clock is ticking and the quest to find a buyer is a major requirement if the company is to avoid the unwanted distinction of being declared Spain’s largest ever bankruptcy case.

Fraser Tennant