* Abengoa has 4 months to reach deal with creditors
* Shares plummet 54 pct, bonds virtually worthless
* Abengoa's bankruptcy would be Spain's largest on record (Adds Abengoa removed from Ibex, details on company)
By Jose Elías Rodríguez and Robert Hetz
MADRID, Nov 25 (Reuters) - Spain's Abengoa started insolvency proceedings on Wednesday after a potential investor said it would not inject fresh capital into the energy firm, sending its share price tumbling by 54 percent.
Under Spanish law, companies can enter into pre-insolvency proceedings, giving them up to four months to reach an agreement with creditors to avoid a full-blown insolvency process and a potential bankruptcy.
Failure by Abengoa to reach such a deal could lead to Spain's largest bankruptcy on record. The company employs around 24,000 people worldwide.
Spanish and international banks' total exposure to Abengoa stands at around 20.2 billion euros ($21.4 billion), including financing for projects, a source familiar with the matter said at the end of September.
The Seville-based engineering and renewable energy firm, which has biofuel and solar-heated power plants in the United States, has been struggling for a year with high debts but the situation became unsustainable in July. It first cut its 2015 targets and stepped up an asset sales plan on July 31, only to announce a share issue days later.
Since then, the company's market value has tumbled by around 85 percent, hit by uncertainties over whether creditor banks would agree to back the issue.
The shares plummeted by 69 percent when trading resumed following a more than three-hour suspension on Wednesday morning. They closed down 54 percent, wiping out around 470 million euros in market value on the day.
The stock market operator said Abengoa would be removed from Spain's blue-chip index Ibex as of Nov. 27.
Bonds also lost most of their value.
Abengoa earlier confirmed that Gonvarri, a unit of privately-held industrial group Gestamp, had backed away from a plan to inject around 350 million euros into the firm.
"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 in a statement.
Abengoa has been trying to find new investors since early August, when it announced a 650 million euro rights issue of new shares to cut gross debt of some 8.9 billion euros.
Gonvarri's interest was conditional on banks underwriting the issue and it had asked the banks to inject 1.5 billion euros in to the company, sources told Reuters late on Tuesday.
Earlier this month, Abengoa's auditor Deloitte said the group faced significant risks and its future depended heavily on the proposed investment deal with Gonvarri.
$1 = 0.9446 euros Writing by Paul Day and Julien Toyer; Editing by Adrian Croft and Mark Potter