Parmalat to decide on bankruptcy
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Parmalat employs more than 36,200 people on five continents.
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(CNN) -- The board of embattled Italian food group Parmalat is expected to decide Tuesday on the form of bankruptcy protection it will seek, media reports say.
Parmalat, which has food operations around the world, revealed last Friday it had a hole in its accounts of almost 4 billion euros ($4.9 billion), making it the biggest European corporate scandal to date.
That came after the Bank of America said papers showing Parmalat had 3.95 billion euros in a Cayman Islands unit were falsified.
Italian Prime Minister Silvio Berlusconi says he found the Parmalat revelations "almost unbelievable," but has pledged to save the company, which is Italy's eighth-largest.
The Italian cabinet is expected to discuss the crisis on Tuesday. The company's board is also meeting Tuesday to decide if it willl seek a controlled administration or an extraordinary administration.
The first would allow Parmalat to freeze payments to creditors for up to two years while it works out a recovery plan. The second would see the appointment of commissioners to oversee the break-up of the company and the sale of its assets.
Parmalat employs more than 36,200 people in 146 plants on five continents, making dairy products, bakery products, fruit juices and tomato-based products.
Bankruptcy would threaten those jobs, along with the repayment of about 2 billion euros in bank loans and 4 billion euros owed to bondholders.
Turnaround expert Enrico Bondi, who took the reins at Parmalat after founder and former chairman Calisto Tanzi resigned earlier this month, has been meeting the group's bankers to decide how to file for protection from creditors and keep Parmalat running.
Bondi could ask the courts to put Parmalat in "controlled administration" early this week, an industrial source told Reuters news agency.
Tanzi and two Parmalat financial executives were among 20 people placed under criminal investigation on Monday, according to the Italian news agency ANSA.
Ratings downgrade
Ratings agency Standard & Poor's has downgraded Parmalat to D, its lowest level.
Losses in the Parmalat scandal, which has been dubbed Europe's Enron, could exceed 4 billion euros. On Sunday, Italian newspaper Corriere della Sera said Tanzi had told potential investors in the group that Parmalat had not bought back 2.9 billion euros ($3.58 billion) of bonds, as detailed on its books.
That would push total debt to almost 9 billion euros, up from the 6 billion on its September 30 balance sheet.
Parmalat shares have plunged in recent weeks, after it missed a bond payment. They fell 66 percent on Friday and are now down about 87 percent for the month.
Protection cannot come soon enough for Parmalat, which faced a Monday deadline for the second instalment of a $400 million payment to buy investors out of a Brazilian unit. It missed payment on the first instalment last week, Reuters reported.
Earlier this month Parmalat failed to repay a 150-million-euro bond on time despite 4.2 billion euros of liquidity on its balance sheet. That forced founder and former Tanzi to hand management over to Bondi.
Prosecutors took boxes of documents from Parmalat's auditors Grant Thornton and Deloitte & Touche on Saturday.
Charges could include fraud and providing false information to auditors, judicial sources said.
From opening his first milk pasteurization plant near Parma in 1961, Tanzi went on to build a dairy empire centered on long-life milk.
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.
Authenticity not recognized
Parmalat said in a statement Friday that Bank of America had told Grant Thornton, auditor of Parmalat unit Bonlat Financing Corp., 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.
According to Reuters news agency, 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 last 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.
Italy's finance regulator Consob has asked the U.S. Securities & Exchange Commission for help with its investigation and may also seek assistance from UK Financial Services Authority, British media report.
