Parmalat says $4.9bn is missing
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MILAN, Italy (Reuters) -- Parmalat revealed a near four-billion-euro ($4.9 billion) hole in its accounts on Friday, heightening fears that Italy's biggest food company could go bankrupt.
The missing four billion euros would dwarf the one-billion-euro accounting scandal that rocked Dutch retailer Ahold earlier this year. That crisis drew comparisons with Enron's plunge into bankruptcy two years ago.
In a statement that sent its already battered share and bond prices tumbling further, Parmalat said a document showing investments and cash totaling about 3.95 billion euros at its Cayman Islands-based Bonlat Financing Corporation had been declared false by Bank of America.
"It is difficult to see how Parmalat can keep going after this clear indication of extensive financial irregularity," said ABN AMRO credit analyst Claire McGuckin in a note to clients.
Despite its stated liquidity of 4.2 billion euros, Parmalat only managed to repay a 150 million-euro bond last week with help from creditor banks and the Italian government.
Parmalat Chairman and Chief Executive Enrico Bondi -- a turnaround expert named this week to attempt a rescue -- called an extraordinary board meeting for Friday afternoon, triggering speculation in financial markets that he might resign.
"Parmalat's latest press release has dropped a bombshell," said analysts at Commerzbank in a note to clients. "To say that something smells fishy would be the understatement of the year."
The crisis engulfing the food group this week has already caused the resignation of its founder Calisto Tanzi as chairman and chief executive.
From opening his first milk pasteurization plant near Parma in 1961, Tanzi went on to build a dairy empire centered on long-life milk and which now has nearly 35,000 employees in 30 countries.
But long-standing confusion about Parmalat's balance sheet turned to real concern recently on signs that the group lacked the ready cash to meet its debts and other financial commitments.
Equity analysts at ABN AMRO temporarily withdrew their "hold" recommendation on Parmalat shares, pending further news.
This week, it failed to make first payment on a required $400 million buyout of minority investors in a Brazilian unit and is fighting to reschedule the deal. The second payment is due on December 22.
Parmalat has outstanding bonds totalling seven billion euros, nearly three billion of which it says it has bought back.
The next publicly sold bond coming due is a 150 million-euro issue which matures in June.
But Parmalat has interest payments to make and dealers say it has also sold bonds privately for which the maturity dates are not generally known.
Authenticity not recognized
In its statement on Friday, Parmalat said Bank of America had told Bonlat Financing Corp.'s auditor Grant Thornton that it did not have an account with the bank.
"Further, Bank of America denied the authenticity of a document dated March 6, 2003 that certified the existence of securities and liquidity amounting to approximately 3,950 million euros as at December 31, 2002, relating to Bonlat," an English version of the statement said.
The document was used for the certification of Bonlat's accounts for 2002, it said.
A partner at Grant Thornton had said last week in an Italian newspaper interview that Parmalat had deposited liquidity at Bank of America, but expressed doubts it existed now.
Bonlat and an investment fund Epicurum, also based in the Cayman Islands, have been the focus of an emergency probe into Parmalat's accounts by PriceWaterhouseCoopers, hired this week.
It was Parmalat's disclosure in November that it had invested nearly 500 million euros in the little-known Epicurum fund that started the slide in its share and bond prices. When the group said it had not been able to recover the cash this month, Parmalat's fall on the markets turned into a slump.
Parmalat's balance sheet to September 30 showed it had debts of about six billion euros but analysts said they were now concerned about possible debt not listed in the accounts.
The group's shares were suspended limit-down on the Milan bourse, showing a 43 percent fall to 0.51 euros. That price was theoretical as trades could not be closed. The stock would go only into a four-minute pre-closing settlement, the bourse said.
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