How to prevent its shares from dropping below €0.01?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Abengoa, the Spanish green energy giant — with big entities in the US, Canada, Mexico, and other countries — famed for cooking its books with Enron-esque aplomb before collapsing in spectacular fashion a few years ago, is back in trouble.
Now, just two years after rising from the ashes of its monstrous debt pile, the company has purportedly asked its long-term advisor, Lazard, to set up a new agreement with creditors as it struggles to repay €142 million of outstanding debt to “holdout” bondholders, who refused to accept the terms of a 2016 restructuring deal.
Abengoa had assured its investors that it would reach an agreement with the holdout bondholders by May 31. But that date came, went and nothing happened. Abengoa then asked for a waiver to give it more time to reach a new agreement. The main sticking point appears to be that many of the investors that agreed to take massive haircuts in Abengoa’s 2016 debt restructuring are now smarting from the fact that the holdout bondholders that took Abengoa to court and won are now getting what they see as more favorable treatment.
For many of the company’s original creditors, it appeared to make more sense to agree to a haircut, even a very large one, than to lose everything they were owed. The list of creditors is exhaustive and includes many of Spain’s banks as well as international giants like Credit Agricole, Societe Generale, Natixis, HSBC, Bank of America, and Citibank.
Spain’s biggest bank, Santander had the greatest exposure to Abengoa (€1.6 billion) and was most interested in sealing the 2016 deal. It now holds around 5% of the group, making it the largest shareholder. The second largest is the Spanish government, which ever-so-quietly and ever-so-predictably poured taxpayer funds worth over €400 million into the company.
By the terms of the new agreement, signed in late 2016, current shareholders would keep just 5% of the new Abengoa. The firm’s founding family, the Benjumeas, who were roundly blamed for the company’s woeful mismanagement, would only own 2.5% of the new company, while banks and bondholders would receive 40%, in return for a massive haircut on old Abengoa’s debts. The rest went to new investors, which mainly consist of global hedge funds and private equity groups.
Thanks to this debt renegotiation, Abengoa avoided becoming Spain’s biggest ever corporate failure. But it can still fail again.
The born-again shrunken energy giant recently proposed issuing new super-senior debt worth €142 million to compensate the holdout bondholders, which include global investors like Exim, Zurich, Liberty, Portland General Electric, the Islamic Corporation for Insurance of Investment and Export Credit, and Haitong Investment. But the firm’s current creditors have rejected the proposal, blanching at the potential size of the total litigation bill that Abengoa could end up facing: €450 million.
That’s a lot of dough for a firm whose current market cap is just €208 million. Since April 2017, Abengoa’s “A” shares have plunged over 90%, from €0.87 to €0.02. Its “B” shares hit €0.01 last April and stayed there ever since — because the minimum share price of listed companies in Spain is €0.01.
Because the stock of Abengoa (and another listed company called Urbas) has hit rock bottom of €0.01, meaning their shares can no longer trade downward, Spain’s stock market operator, the BME, decided to reduce the minimum share price of listed companies from €0.01 to €0.001 (a tenth of a penny). The move, which is scheduled to take effect in October, would mean that the pathetic value of Abengoa’s B shares could plunge even further, potentially diluting the value of the holdings of Abengoa’s former shareholders from almost nothing to virtually nothing.
The firm’s founding family, the Benjumeas, which will be among the hardest hit by the change, have come up with a plan to stop that from happening. The plan would involve pushing through a stock split before BME’s new regulation comes into effect. In the case of Abengoa, one share worth 1 penny would be converted into 10 shares worth 0.1 penny a piece. That way, existing shares would instantly hit the new rock bottom price of €0.001, but there would be 10 times as many shares, and the value of the shareholder’s holdings would not have changed.
This plan, mooted by Abengoa and Urbas, has infuriated Spain’s market regulator, the CNMV, which has threatened to delist both companies from the stock exchange if they proceed to split their stock. Unperturbed, Urbas carried through on its stock split last week. Abengoa may do the same in a couple of weeks’ time.
If CNMV follows through on its threat and expels Abengoa and Urbas from the stock exchange it could have negative ramifications for some Very Important Shareholders, including the Spanish government and very large banks. Or will it blink? Some of those Very Important Shareholders are already exhorting the CNMV to ban short sales of Abengoa stock, just in case things get uglier. For the BME’s part, it has announced that it will lower the minimum price threshold further, to €0.0001 (i.e. a 100th of a penny), in order to neutralize Urbas’ recent stock split.
As for Abengoa, its problems continue to multiply. It has been charged (together with Belgian peer Alcogroup and Swedish company Lantmannen) by EU antitrust regulators with rigging ethanol benchmarks a few years back. Abengoa and Alcogroup are reportedly seeking to settle the case. Under such a procedure, companies admit wrongdoing in return for a 10% cut in a fine.
Nonetheless, the financial fallout could be significant. EU sanctions can be as much as 10% of a company’s global revenues. For a company like Abengoa that is still struggling to groggily get back on its feet financially, a fine of that magnitude may be difficult to survive. By Don Quijones.
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