Parmalat continues to seek cash recovery

Parmalat, the Italian dairy company which has been in the hands of the administrators since collapsing with massive debts last year - has continued to take legal action against a number of leading financial institutions in a bid to recover some of the €14 billion it still owes to creditors. Meanwhile, it is business as usual for the dairy group, reports Iordan Mateev.

Over the last month, Parmalat has sued six financial institutions over their ties to the group before it collapsed under €14 billion of debt last December amid widespread fraud. The legal action is part of a process instigated by the company's government-appointed administrator, Dr. Enrico Bondi, to recover cash from companies believed to have played a role in Parmalat's collapse.

One such company is Credit Suisse First Boston International (CSFB), from which Parmalat is seeking to recover some €248 million relating to an agreement signed in 2002 between the two parties. But CSFB is just the latest in a number of the world's top banks to face legal action from Parmalat: proceedings have already begun against Citigroup, Deutsche Bank and UBS, all of which were involved in financial dealings with Parmalat before the fraud was uncovered.

Parmalat is seeking the recovery of $10 billion from Citigroup, the world's largest financial services company, which the dairy group has accused of playing a crucial role in its downfall by creating deals it knew would disguise debt and cash flow levels, and contributing to $8 billion being lost, stolen or wasted.

Parmalat is also seeking $10 billion in damages from its former auditors, Grant Thornton and Deloitte & Touche. The amounts being sought from UBS and Deutsche Bank are €290 million and €17 million respectively.

Bondi's recovery plan for Parmalat also includes a debt-to-equity swap and the distribution to its future shareholders of at least 50 per cent of Parmalat's distributable profits arising from the next 15 years' annual results, including any eventual proceeds derived from the lawsuits.

All of financial institutions accused by Parmalat have denied any wrongdoing, and the complexity of the legal action makes predicting a likely outcome extremely difficult. Lawyers say that court cases such as this usually last at least two to three years, and frequently end in out-of-court settlements.

But while the company's financial concerns continue, whatever the outcome of the court cases, elsewhere it is business as usual for Parmalat, whose production operations were protected by new bankruptcy legislation rushed through by the Italian authorities last year to safeguard the company and its thousands of employees.

The new laws, which allowed Parmalat to separate its financial operations from its production arm, have also helped the company get itself back on the road to recovery. First half sales at the dairy group were some 12 per cent lower than in 2003 at €2.4 billion, but this was a better-than-expected performance, given the troubles faced the group.

The decline was caused mainly by a drop in sales in Brazil, where the company's local subsidiary was temporarily managed by the local authorities and regional suppliers in a bid to maintain production.