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 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,
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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.
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