In the forlorn hope the world’s biggest green-energy zombie will somehow survive the oncoming storm.
By Nick Corbishley, for WOLF STREET:
When it comes to amassing and defaulting on insurmountable debt loads and then having the debt restructured to live another day, few companies can hold a candle to Abengoa, the global green energy giant, headquartered in Spain, famed for cooking its books with Enron-esque aplomb before collapsing in 2015. Reverberations were felt the world over, including in the U.S. where its unit filed for bankruptcy with $10 billion in debt. The company then rose from the ashes of its monstrous debt pile, only to reenter default in 2019. Once again, the debt was restructured.
Now, Abengoa is warning of a third default, which it’s partly blaming on Covid-19, although its latest rash of problems seem to have predated the virus crisis. The firm is two-and-a-half months late in releasing its financial report for 2019, which was due in late February.
The ostensible reason for this delay was that the company was conducting a revaluation of its subsidiary Abenewco 2, which apparently unearthed €388 million of heretofore unaccounted-for losses, none of which could be blamed on Covid-19.
According to financial daily El Confidencial, the actual reason for the delay was that Abengoa’s auditor PwC was refusing to sign off on its 10-year business plan. Given Abengoa’s long history of financial chicanery, that’s not beyond the realms of possibility.
Even today, it’s impossible to find a copy of Abengoa’s full financial report for 2019 on its website. But it has released a three-page Updated Business Plan that has been translated into bizarrely bad English. In the document, the company reports increased sales but it has still clocked up losses of over €500 million. Granted, it’s an improvement on last year’s €1.5 billion of losses but apparently not enough to avert a new rescue plan, which includes:
- A request for €250 million in fresh loans from its five main banks (Santander, Bankia, Caixa, BBVA and Bankinter), which Abengoa hopes will be 70% guaranteed by the Spanish government’s Covid-19 emergency loan fund.
- A request for further credit lines worth €300 million from these same banks as well as the Spanish Export Credit Agency CESCE. In the first restructuring of Abengoa’s debt the Spanish government used this state-owned body to ever-so-quietly and ever-so-predictably underwrite €400 million of Abengoa’s debt, €100 million of which has already been written off. Now the company wants more of the same.
- Further haircuts for providers worth up to €700 million.
- Further debt-for-equity swaps for the company’s creditors. Abengoa’s various classes of shares trade at €0.01 or below. In other words, they do not even qualify as a penny stock.
Abengoa’s main creditors include the Spanish State and many of Spain’s biggest lenders. The biggest lender of them all, Santander, had the greatest exposure to Abengoa’s debt (€1.6 billion) and was most interested in sealing the 2016 deal, thanks to which Abengoa narrowly avoided becoming Spain’s biggest ever corporate failure, with over €25 billion of liabilities. Despite selling part of its stake in 2017 and 2018, Santander is still the largest shareholder.
Many of the other creditors must be wondering why they agreed to restructure Abengoa’s gargantuan debt pile in the first place. Perhaps at the time it appeared to make more sense to agree to a haircut, even a very large one, than to try to recover whatever they could in a liquidation.
Despite two debt restructurings, Abengoa still has €6 billion of debt on its books — more than two thirds of it short term — that it says it can no longer pay under the conditions established in its last refinancing deal, struck just over a year ago.
Abengoa has already warned investors that it expects sales and Ebitda to fall by 21% and 8% respectively in the coming years. It also admits, in its error-strewn English, that many of its most important operations are in regions that are likely to be hit hardest by the coronavirus crisis:
“Unfortunately, many of regions (sic) expected to be most affected by the economic retractions (sic), such as Latin America, Middle East and Sub-Saharan Africa, are the core markets of Abengoa.”
The company already has big problems in one of its biggest markets, Mexico, where the government last week fast-tracked new rules that will impose tougher restrictions on new clean energy projects and grant the National Center for Energy Control the authority to reject new plant study requests. According to the Mexican business lobby group CCR, the new legislation puts more than €30 billion of investments at risk, much of which belongs to European and Canadian companies that are now considering suing Mexico’s government for violating their investor rights.
Defenders of the government’s bill say its goal is to ensure that local communities are properly consulted before approvals are granted for large-scale wind, solar or hydroelectric projects. It is also intended to reduce the corruption and other excesses that Mexican President Andres Manuel Lopez Obrador (AMLO) says is rampant in Mexico’s renewable energy sector.
Considering how Abengoa treated its Mexican subsidiary and creditors during its first debt renegotiation in 2016, effectively transferring all of the subsidiary’s cash and loan proceeds to the parent company’s treasury, AMLO could be forgiven for wanting to crack down on bad practices in the sector. But critics of the bill also accuse AMLO of seeking to protect national utility CFE and state-owned oil company Pemex from competition in the sector as part of his mission to achieve energy sovereignty.
For Abengoa, the events in Mexico bear eerie parallels with the energy reforms enacted in Spain in 2013, which sharply reduced the public subsidies available to companies in the renewable energy sector. With the stroke of then-Spanish PM Mariano Rajoy’s pen, the gravy train was over. Two years later, the company was bankrupt. Now, it faces a similar threat in another key market.
Another risk it faces is being found guilty of falsifying documents, together with its former auditor Deloitte. If found guilty, Abengoa could face damages it will not be able to pay.
For the company’s biggest creditors, including Spain’s government, this is just one of many issues to be considered as they weigh up whether to let the company fall, which will mean finally eating the totality of their losses on the investment. It will also result in around 14,000 job losses worldwide. The alternative is to write off even more of Abengoa’s debt while lending it even more money, including taxpayer funds, to burn through, in the forlorn hope that the world’s biggest green energy zombie will somehow survive the oncoming storm without need of yet further assistance. By Nick Corbishley, for WOLF STREET.
First the Global Financial Crisis, then the Euro Debt Crisis, now the Big One. Read… Third Mega-Crisis in 12 Years: Eurozone Economy Plunges at Fastest Rate on Record
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I owe you a euro, more fool me. I owe you a billion euro’s, more fool you.
How in the world did SofBank miss this opportunity?
It seems tailor made for their investment strategy…
“How in the world did SofBank miss this opportunity?”
SB is the only company in the history of the world that makes money (ie, forgoes losses…) due to being hung over from the previous night’s hookers and blow…
Nice one !
Enron/Arthur Andersen flashback.
Except Arthur Andersen went bankrupt and was dissolved.
And Enron executives went to jail.
“Another risk it faces is being found guilty of falsifying documents, together with its former auditor Deloitte. If found guilty, Abengoa could face damages it will not be able to pay.”
Ken Lay never spent a day in jail.
Uhhh…yea. He died of a heart attack before he was sentenced.
Prior to…ummm…dying, he was convicted of all 6 felonies he was tried for. Because he died before sentencing, his conviction was vacated.
So posthumously someone went to the trouble to vacate? Pension for the survivors perhaps?
A number of commenters seem to think that no one goes to jail in the US for financial crime. A while back I gave a list of ten who are doing life plus, none having drawn a gun or harmed a hair. Madoff doing 140 years isn’t even number one. So ya Lay died but CFO Skilling hasn’t been out that long. Did eight?
In the West, US has far and away the toughest sentences for everything including fraud.
If you want to see a place soft on fraud you have to travel all the way to Canada, where the longest sentence EVER given is eight years. Out in 4 or 5?
So if this is your game, you know where to go.
And to repeat, your Theranos babe is going to be doing some heavy time, at least tying with Canada’s longest. Trial in August. She needs to develop a major psychiatric condition soon. Because as George Costanza says: ‘it’s not a lie if you really believe it.’
Looks to be jail time this time…no money left to borrow and pay fines.
1) Heavy rain, cause by the climate change, broke two Michigan dams.
2) NDX closed Feb 21/ 24.
3) NDX might be on the way to make a new all time high (an upthrust).
4) NDX weekly + cloud (18, 52,104) : Pareto top, who contribute the most for the climate change, survived Dec 2018 and Mar 2020 floods. Next time around, the dam will break, under the heavy rain, because Feb gap was leaking. The cloud will divide NDX, north & south, like the Mason Dixon line.
Long time readers forgive me for mentioning this again but it’s too priceless.
Before Abengoa’s first problems, when as far as anyone knew it was doing fine and had it audited statements to prove it, a first- year business student, (last name Balsa?) analyzed it for an assignment. His conclusion: it was likely to go bankrupt. One of his comments: ‘they turned losses into assets.’
Maybe something about the deceit soured him on his major because he denied the world the next Gordon Gecko by switching to medicine.
This was in the original WS piece quite a while ago.
” Pepe Baltá, a 17-year old secondary school student in Barcelona who chose Abengoa as his economics project last year! Baltá noticed serious flaws in the company’s accounting. “If it does not act soon, there is a strong risk Abengoa will go into bankruptcy,” he wrote in his 18-page paper, titled “Analytical Report on Abengoa, 2012 and 2013.”
““I have some accounting knowledge,” Baltá, now 18, told the Spanish daily El Mundo, “and Abengoa’s accounts did not seem to add up. There was a lot of debt and few active assets compared to fixed ones. The big surprise was that negative profits were being converted into positives. I didn’t understand how they could do that.”
Incredible isn’t it -You couldn’t make it up!
Generally Accepted Accounting Principles have long given way to Generally UNACCEPTED Accounting Principles.
With all these zombies, someone should go in the ass kickin’ business ’cause business will be good.
Zombies are just a part of the green movement. Reduce, Reuse, and Recycle. Zombies are just the Reuse of existing organic matter.
Profits for company’s like this have become today’s great white whale.
Do these investment banks think by some miracle it’s all going to turn around someday and turn a profit? It appears as if this company expects to be bailed out again and again, as if its investors are held hostage by its losses and the bail outs are a type of modern day ransom.
“Do these investment banks think…”
IBs have now repeatedly shown themselves to be as concerned about their clients as…the average pimp.
1) Messi took a 70% pay cut to save Barca.
2) Abengoa, one step at a time Debt cut, saved zombie Stantandar and the Spanish gov. Blame renegade Mexico.
3) While NDX closed Feb 21/24 gap above, the DOW and NYA took a 50% pay cut.
4) The global warming caused a global dollar dehydration.
5) Since 2015 UST3M is trending up. The long duration cont to trend down.
6) When they collided, for a while, they created a knot. After tangling together, choking each other and inverting, there was a big explosion. All rates were flying in the air, separating. It was a bomb that bomb itself.
7) A huge cloud was born. But there was a climate change.
8) Since Oct 2018 climax, the front started trending down.
9) The long duration followed caused the next explosion.
10) On Feb 2020 all US rates were sucked in a vortex.
11) They plunged between 70% to 100% below the starting line from three years ago.
12) On May 21st all US rates are still sunk together.The cause is the global dollar dehydration.
13) JP will do what it takes, but JP talked the talk, but was not walked the walk. So far, JP was not able to lift US and the European rates.
14) The trend is down. The retracement is very shallow. Draw 3Y of : UST10Y, UST5Y, UST2Y, UST1Y, UST3M, together in one chart, and u get Indy 500 multi crashes.
This group need to come up with a porcine name for “unicorn” variants. The epithet need to capture both the specialness of Unicorns (cough! cough!), as well as their piggish reality.
“Porcineacorn” (pronounced Porcine-a-corn) and “Porcorn” (pronounced poor-corn) are not good enough; however, they accurately demonstrate my total lack of artistic creativity.
WE CAN DO BETTER! SUGGESTIONS GLADLY ACCEPTED!!
In other business, I propose we grant retro-active “unicorn” status to Italy’s Monte dei Paschi de Siena Bank. This turd of a bank has been recapitalized one-way-or-another every year since 2012. Its only mistake, as candidate-candidate, is a bunch of its executives went to prison.
I believe counting all bail-outs & recapitalizations, this candidate-unicorn has consumed more capital than Uber’s roughly $20B (I’m not kidding).
Hahahahahahahahahahha……..ad infinitum.!! Stop that, it hurts!
I think “Furries” best captures the essence of the transaction.
Well, it’s all about mythical marketing….
If they believe that, they’ll see a charming unicorn.
Which will feel good as it will enable them to ignore the rhinoceros charging at their investment.
I know who would part with money to prop up this company because it’s “gareeeeeen”. They should contact everybody who bought Tesla stock or vehicles.
OH NO, quick, call AOC, call Bernie, this can be a part of the green new deal, can’t let it fail because of the evil oil companies. Rescue it, throw $6 B dollars at it.
In the area of Las Cinco Villas (Aragon) there are a number of huge solar power plants run by Abengoa. Many panels are in odd crocked positions (they are supposed to change their angle throughout the day to maximize energy production) and the plants have a generally dilapidated appearance about them. There’s no fencing and anybody could just walk in and walk out with a bunch of components and as much copper wire as he can carry. I’ve never seen a repair/maintenance technician at work or a security guard on duty.
I honestly doubt these plants produce 50% of their design power on a very good day.
I also honestly doubt Abengoa has adapted the book value of these power plants to reflect how degraded their conditions are, which in turn means their creditors have a bunch of vastly overvalued collaterals on books.
No small wonder all parts involved desperately wish to avoid a bankruptcy, especially considering right now political passions in Spain (like everywhere else) are running hot and neither Podemos nor Ciudadanos will be able to channel the dissent in harmless directions this time. Both have already soiled themselves too much to be presentable alternatives to PSOE and PP.
Unless some other Franco vintage anti-democratic law is dragged out of the closet I fully expect at least one new major political party to pop up in Spain over the next six months as a reaction to all this filth.
Well, that’s the worry isn’t it.
It is not all that long ago that Franco died.
Will fascism, which often involves the ‘strong man’ illusion, appeal again?
‘The game, in Spain, stays always much the same’.
Perpetual corruption, discontent, marches, new reforming parties, noise and…….nothing.
Leopardi would have been proud to see his famous maxim vindicated, time and time again……
Giacomo Leopardi was also a son of the Enlightenment and an early Romantic, two movements that saw Spain as hopelessly backward just like they saw Prussia as an obscurantist bastion of brutish militarism, at least since Voltaire and Frederick the Great quarrelled like two foul-mouthed fishwives. Idealists like him tend to see the world in black and white, not in shades of grey like I do. ;-)
About the Peloponnesiac Wars Thucydides wrote that what shocked the Greek world was not so much that Athens lost, but that she could go on fighting for so long after suffering such crippling defeats as that in Sicily. The same is nowadays held true about the French Revolution: what’s shocking is not so much that it happened, but that it took so long for it to happen. Change requires time but when the time is ripe, absolutely nothing can stop it, not even hi-tech snake oil salesmen like Podemos in Spain and M5S in Italy.
Whilst it all happens, the cool kids promoting it are just the best kids in town.
Those with doubts are crabbit old cranks with no style. At best irrelevant old buzzkills who just don’t get it, man.
At worst, Anyone that questions them will be doubly hated, for challenging their dreams and ergo, in their minds, their right to hold them.
So it becomes, via peculiar dogleg thinking, a challenge of their manhood, not their take on the issue at hand. That sort debate is unwinnable until the facts become inescapable.
And it’s lose some more thereafter, as the very existence of the doubter will forever be a living embodiment of their failure, to be bitterly resented.
These guys need a better spin team.
Elon Musk has been doing this sort of thing (and often worse) for nearly two decades and he makes it work.
It’s all a matter of optics
Good article and comments ??
That’s what makes WS one of my favorite reads.
” bizarrely bad English”
Wolf – it’s called Nigerian Email English.
“14,000 job losses worldwide”
If anyone has a brain I see this as the key. Let the other countries suck it up in job losses, Spain has their own problems.