* Banking crisis sparked funding problems at global leader
* Foreign investors were attracted to high-growth profile
* Culture of secrecy under the spotlight
* Chairman and any undeclared debt under scrutiny
* Thousands of jobs at risk
By Tracy Rucinski and Carlos Ruano
VIGO, Spain, April 26 Even in a record year for
Spanish bankruptcies, the filing by Pescanova, a
household local name that farms, catches and processes fish,
stands out not just for scale, but for the opaque culture and
boardroom dysfunction it has revealed.
The April 15 insolvency filing mentions debts of 1.5 billion
euros ($2 billion), but financial sources who have had dealings
with the company say total debt is probably more than double
that amount, potentially making it the country's third-largest
The court accepted the filing on Thursday and said it would
name independent administrators to replace the board.
Regulators and auditors are in particular scrutinising the
actions of its chairman, Manuel Fernandez de Sousa, the son of
company founder Jose Fernandez, who built Pescanova from a small
business in the Galician port city of Vigo to one of the world's
largest fishing firms, with interests from Argentina to Namibia
and 10,000 employees worldwide.
Pescanova revealed only on the day of the insolvency filing
that Sousa had sold half his 14.4 percent stake in the company
in the months leading up to the filing without telling
regulators, as required by law.
The stake sale will have raised at least 27 million euros,
according to Reuters calculations, a third of which the company
said he lent back to Pescanova.
In a regulatory statement announcing the stake sale on April
15, Pescanova said: "Concerned about the group's liquidity and
Pescanova's difficulties in financing itself, the chairman
decided to offer his own patrimony to the company to resolve
urgent liquidity problems."
Pescanova is now being investigated by the stock market
regulator for possible market abuse. The company also failed to
file accounts on time after falling out with its auditors BDO,
who refused to sign off the accounts and were fired this month.
Pescanova declined to comment and denied several requests
from Reuters to speak to the chairman or another executive.
BDO sent a letter to Spain's stock market regulator on April
12 to complain that there were no grounds for its dismissal and
that it had respected all its obligations.
In the letter it says it repeatedly asked Pescanova for
documents and information in the course of its audit that were
not provided by the company, which made it impossible to sign
off on the accounts.
Part of the problem at Pescanova, whose declared debt is
eight times its annual operating profit, is due to mishaps at a
turbot farm in Portugal, where thousands of fish died in 2011
and 2012 because of the faulty construction of the hydraulic
system, Pescanova revealed on April 15. That caused an estimated
70 million euros of losses.
But its biggest problems arose from the collapse of Spanish
savings banks, which triggered the need for European aid and
fears that Spain itself would need a full sovereign bailout.
A former high-ranking executive at Pescanova, who said he
left the company in disagreement over its management, told
Reuters that as Pescanova's only significant shareholders,
savings banks Caixa Galicia and Caixa Nova - now absorbed into a
nationalised bank - had granted Sousa freedom to act and lent
the company cash whenever it had periodic liquidity problems. He
spoke on condition of anonymity.
Sousa's loss of access to easy money was not the only
consequence of the nationalisation of the savings banks, which
held as much as 30 percent of Pescanova. The banks were also
forced to sell their stakes, which opened the door to new
foreign investors and members on a board previously controlled
by Sousa's friends and family.
Foreign funds bought into a company that analysts
recommended as a reliable generator of profit, with operating
margins above 11 percent.
This put close scrutiny on the management of Sousa, whom
sources close to the chairman said had been used to acting
unilaterally. Three sources who have worked closely with him
told Reuters he disregarded input from other executives.
Another source with knowledge of the situation said auditors
were kept from visiting various departments and were only
allowed to speak to one authorised executive.
When BDO wouldn't approve the financial statements,
Pescanova hired KPMG for a detailed analysis of its accounts.
BDO and KPMG declined to comment.
Alexandra Morris, senior portfolio manager at Norwegian
mutual fund ODIN, which held 0.68 percent of Pescanova, said she
and her colleagues were "outraged" when they heard about the
problems BDO had with the company and "managed to sell our
Other shareholders did not manage to.
Trading in Pescanova shares was suspended on March 1 but
resumed on March 4 until an indefinite suspension on March 12,
when the company said it might have mis-stated debt.
That left investors - including main shareholders Spanish
brewery SA Damm, with 6.18 percent, and Luxembourg
financial holding company Luxempart, with 5.8 percent - trapped
in a stock that has plunged 99 percent since the start of 2012.
Damm has issued a statement criticising Sousa for hiding his
reduced stake in the company while continuing to exercise its
full influence. Luxempart did not reply to requests for comment.
Criticism from outside contrasts with employees' deep
loyalty to Sousa, who built on his father's work to make
Pescanova one of Galicia's top two companies, second only to
Inditex, famous worldwide for its Zara fashion chain.
As a major employer in industrial city Vigo, also home to
shipyards and a Citroen plant, it is a source of pride for
thousands of Galicians who have worked there for generations.
Its main factory sits between a tall hill and the Vigo ria,
or bay, making it accessible only by a private road and the port
itself, where fish are directly taken from vessels to the plant
and made into fish fingers and other products.
Vigo locals buy frozen shrimp, hake and scallops directly
from a shop at the plant.
"We can't believe this is happening. The chairman is kind
and generous, a hard worker. We're confident this won't all go
to waste," said a tearful shop assistant, who has worked for
Pescanova for 41 years, starting as a young woman in the
factory. She spoke before the court said it was replacing the
board. Like a dozen other employees interviewed by Reuters, she
did not want to be named.
Whether it all goes to waste will depend on what auditors
now find in the wider group's records.
Pescanova has stakes in 89 associated companies across the
globe, a web of businesses that complicated oversight. Auditors
of the parent company did not have access to the books of
affiliates in which Pescanova owned less than 50 percent.
KPMG will now investigate to see if further debt properly
attributable to the parent is hidden in any of these affiliates,
which would have flattered the apparent financial strength of
Public registries reveal numerous changes in ownership of
Pescanova group companies in recent weeks, a strategy that could
protect them from falling into receivership. Pescanova announced
the sale of two fish farms in Ecuador last week to raise cash to
pay down debt and is trying to sell other units.
The insolvency process could now take months or years,
ending either in liquidation or a plan to re-float the business.
The group's creditors include Spain's biggest banks as well
as state bank restructuring fund FROB, which nationalised the
Galician savings banks that lent Pescanova hundreds of millions
It also owes a long list of suppliers, including chemical
firms, fish-feed companies and fishermen.
The securities regulator has warned of sanctions for failure
to present audited accounts. A public prosecutor is also probing
the firm for insider trading, which could lead to criminal
"We need a law with consequences for directors that put
their own companies at risk with their reckless management,"
said Xabier Vence, spokesman for leftist regional party Bloque