December 15, 2015 / 5:01 PM / 3 years ago

Banks ready to extend short-term lifeline to Spain's Abengoa

MADRID (Reuters) - Creditor banks are ready to extend a short-term cash lifeline to debt-laden Spanish energy group Abengoa (ABGek.MC) to avert what would be Spain’s biggest-ever bankruptcy, according to sources, but the firm’s future beyond January remains unclear.

A tower belonging to the Abengoa solar plant is seen at the "Solucar" solar park in Sanlucar la Mayor, near the Andalusian capital of Seville, southern Spain December 15, 2015. REUTERS/Marcelo del Pozo

The banks’ are prepared to offer the company 210 million euros ($229 million) so it can pay salaries and maintain current operations, according to the two banking sources familiar with the matter, in the latest twist in talks that began last month to ensure that Abengoa stays afloat.

Abengoa declined to comment, as did a steering committee representing its roughly 200 creditor banks worldwide.

The company, which started out 70 years ago as a business to design and make electricity meters in Seville, southern Spain, is now a renewable energy giant operating in a dozen countries across four continents.

It has been praised by politicians including U.S. President Barack Obama for its solar-thermal plants which produce clean electricity at a competitive price in places such as the Mojave desert in Arizona and South Africa’s Northern Cape province.

But its aggressive expansion into the clean energy business since 2007 has been fuelled by taking on huge debts, which finally brought the company to its knees this year when its lenders refused to extend credit lines.

Its market value, which had risen rapidly to top 4 billion euros last year, has since plunged by more than 90 percent - with investors fearing the firm could collapse under its debt, and unsettled by its opaque and tightly-controlled financial structure, still in the hands of the Benjumea founding family.

Although there is no official figure for the firm’s total financial liabilities, separate sources familiar with the matter say they total at least 25 billion euros, 80 percent of which sits with lenders such as Santander (SAN.MC), HSBC (HSBA.L) and Credit Agricole (CAGR.PA).

Under Spanish law, Abengoa has until mid-April next year to reach an agreement with creditors to avoid a full-blown insolvency process and the country’s biggest bankruptcy on record.

The banking sources say the way forward is for them to take a deep haircut on their debt in exchange for a controlling stake in the company so that they can refloat it and sell it at a better price later on in a bid to minimise their losses.

“Abengoa has functioning assets turning steady cash, a (project) pipeline worth 8 billion euros and a stake in Abengoa Yield worth more than 600 million euros,” said one of the sources, a banker who is involved in the negotiations.

“But no other firm I have worked with has the level of sophistication and complexity of Abengoa. It’s mainly because of the main shareholder, so that’s something that needs to be dealt with,” the banker added.

CASH CRUNCH

The sources said Abengoa’s current cash crunch was triggered in early August when Spanish banks withdrew 650 million euros in credit lines and guarantees in a matter of hours following the announcement of a rights issue by the group only two days after it had denied such a possibility in an earnings presentation.

Abengoa announced on Nov. 13 that it had found an investor to inject 350 million euros but the deal was called off on Nov. 24, forcing Abengoa to enter into pre-insolvency proceedings the following day.

Creditor banks have since asked Abengoa to find alternative funding by its own means, including through a sale of its 43 percent stake in U.S.-listed Abengoa Yield ABY.O.

Although new talks on emergency financing are due to take place on Wednesday, the banks - which could take a big hit on their 2015 earnings if the company goes bust by the end of December - are now working on a plan to get the firm running until January, the sources said.

Lenders are ready to disburse 110 million euros in December, as well as an additional 100 million euros next month if Lazard, which is advising Abengoa, puts forward a credible restructuring plan by Jan. 18, the sources said.

The banks have also approached Spain’s government lending arm, the Official Credit Institute (ICO), about a potential loan of 15 million to 20 million euros as part of the 110 million euro credit line, the sources added.

The ICO declined to comment.

The creditor banks were also holding talks on Tuesday with international investment funds about a potential participation, although the funds are unlikely to agree, the sources said.

There was also further evidence of Abengoa’s shaky finances in the latest annual accounts of its majority shareholder, according to a document seen by Reuters on Tuesday.

Inversion Corporativa (IC), the vehicle through which Abengoa’s Benjumea founding family and its business partners control the company, put up part of its controlling stake as collateral for a 100 million euro loan last year, the document showed.

This meaning that IC, which entered pre-insolvency in November at the same time as Abengoa, could see its control over the energy firm reduced if it fails to repay the loan.

Despite repeated attempts, Reuters has not been able to reach the founding family, and Abengoa has declined to provide a contact.

IC posted a profit of 63.6 million euros in 2014, of which 12.9 million euros was distributed as a dividend, last year’s accounts showed.

($1 = 0.9069 euros)

Additional reporting by Jose Elias Rodriguez; Editing by Pravin Char

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