A Spanish renewable energy group has collapsed into insolvency protection, it said on Wednesday, just months after US investment bank Citi led a €100m (£70m) share sale to raise funds for the group.
Abengoa shares dropped 70% in minutes after the company said it was entering insolvency protection after a deal for a €350m capital injection fell through.
The collapse is especially embarrassing for Citi after it led a July share sale for the company at a price of €2.80 a share. On Wednesday Abengoa shares slumped to just €0.33.
The company, which employs 24,000 people, is involved in renewable electricity generation, converting biomass into biofuel and desalination of seawater for drinking.
Disgruntled investors, who subscribed to the shares at the time, have long questioned why Citi had not done more due diligence before acting on the share sale. Citi declined to comment on the latest turn of events at Abengoa.
Days after the Citi-led share sale in the summer, the Spanish company revealed it was seeking to raise €650m of capital and dispose of €500m of assets. Then it alerted the market that its free cash flow for the year would be as much as €800m lower than previously forecast.
One banker said on Wednesday that Citi had made a “big, big mistake”, promoting the share sale without having more information on problems that lay ahead. However, there would have been limitations as to how much the company could have told it ahead of announcements to the market.
Abengoa, which has been at the centre of speculation over its chances of survival for some time, had been hoping to receive an injection of capital from Spanish industrial group Gonvarri but was forced to tell the markets that the agreement had fallen through.
“The company will begin the negotiating process with its creditors with the aim to reach an accord to guarantee the financial viability under the article 5 of the Bankruptcy Act, which the company intends to request as soon as possible,” Abengoa said.
Under Spanish law, companies can enter into pre-insolvency protection, giving them up to four months to reach an agreement with creditors to avoid a full-blown insolvency and a potential bankruptcy.
Abengoa has been trying to find new investors since the end of July, when it announced a €650m rights issue of new shares to cut gross debt of some €8.9bn.
Spanish and international banks’ total exposure to Abengoa stands at around €20.2bn, including financing for projects, a source familiar with the matter said at the end of September.
Gonvarri’s interest was conditional on banks underwriting a rights issue agreed in September, asking the banks to inject €1.5bn into the company, Reuters sources told the news agency late on Tuesday.
The group held a three-hour long conference call with investors after the publication of its results.
This article was written by David Hellier, for theguardian.com on Wednesday 25th November 2015 14.00 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010