Parmalat debt eight times bigger than said

Parmalat said yesterday it had net debts of €14.3 billion ($17.6 billion) shortly before its crisis erupted last month, almost eight times the figure given by former managers, most of whom are now under arrest.

Parmalat's battered bonds took a new hit on the news. Traders and analysts said the numbers suggested that holders of the debt may recover under 10 per cent of its face value.

The multinational also said auditors PriceWaterhouseCoopers found its earnings before interest, taxation, depreciation and amortisation in the nine months to September 30 were in fact €121 million, a mere fifth of the result officially reported.

Prosecutors leading a fraud investigation into Parmalat have said the group's top management routinely misled markets, faked bank documents and inflated revenues for over a decade. They have estimated debts could be as high as 13 billion euros. Parmalat's euro-denominated bond due in 2010 was bid six percentage points lower at 12 per cent of face value yesterday. Bonds in dollars lost nearly half their remaining value in New York and were quoted at 11-12 cents on the dollar.

Parmalat shares have been suspended indefinitely.

"I estimate bondholder recovery to be under seven percent," said an analyst of distressed debt in London.

By comparison, the analyst said, some bondholders of bankrupt US energy trading group Enron - whose spectacular collapse Parmalat's has been compared to - recovered 10 cents on the dollar after taking legal action.

Using Parmalat's figures yesterday and various assumptions, he calculated its enterprise value at €3.3 billion, leaving €800 million to be split by holders of €11.8 billion in bonds after €2.5 billion are paid to creditor banks.

Previous market estimates of Parmalat recovery rates assumed net debt of €10 billion and ranged from 30 to 50 per cent.