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On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

What happens if cases like this prove to be the rule rather than the exception?

Spain appears to have a brand-new Abengoa — the imploded energy giant whose fabulous accounting tricks pushed creditors into a black hole — on its hands: Isolux was until recently a fairly large privately owned infrastructure company with operations spanning the globe.

When the group declared bankruptcy last July, its cash flow in Spain was barely enough to cover a month’s operating costs. The group had a a total workforce of 3,884 and 119 infrastructure projects under development of which 39 were still operational and the remaining 90 had been halted.

The company tried to reduce its debt addiction through agreements with investment funds but they fell through. It also made two attempts to go public, in Brazil and Spain. Both failed.

The bankruptcy proceedings affected seven subsidiaries. At the time, the company stated that it owed €405 million to suppliers, that its total financial debt — including those companies not included under the Spanish Insolvency Act filing — was €1.3 billion, of which €557 million was associated with project financing, and that the total deficit on the group’s balance sheet was about €800 million.

Turns out, according to the bankruptcy receivers, the shortfall is actually €3.8 billion — four-and-a-half times the company’s original estimate — and the group’s total debt, at €5.7 billion, is over €4 billion more than the amount stated by the company 10 months ago.

This amount does not include the group’s dual or contingent liabilities. The receiver’s report concludes that the current situation will probably culminate in the liquidation of the entire group.

How did all this come to pass? According to the receiver’s report, the collapse of the real estate bubble in Spain and the drastic reduction in public work tenders during the crisis led Isolux to massively expand its international operations, as many large Spanish companies did in the aftermath of the housing bubble collapse.

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