Parmalat reveals €4 billion hole in accounts

Parmalat yesterday revealed a four billion-euro hole in its accounts, saying a document showing investments and cash held by a Cayman Islands unit of the food group had been declared false by a major bank.

In a statement that sent Parmalat's battered share and bond prices tumbling again, the group said newly appointed Chairman and CEO Enrico Bondi - a turnaround expert hired this week - had called an extraordinary board meeting for yesterday afternoon.

The Italian food group, with outstanding bonds totalling seven billion euros, is immersed in the worst liquidity crisis in its 40-year history.

Investors have grown increasingly alarmed as Parmalat struggled to repay a 150 million-euro bond earlier last week and then delayed first payment on a required $400 million buyout of investors in a Brazilian unit this week.

In its statement yesterday, Parmalat said Bank of America had told auditors Grant Thornton that Bonlat, a financial unit of the Italian group based in the Cayman Islands, did not have an account with the bank.

"Furthermore Bank of America does not recognise the authenticity of a document dated March 6, 2003, which attested to the existence of positions in securities and cash corresponding to roughly €3.95 billion as of December 31, 2002, owned by Bonlat," the statement said.

The document was used for the certification of Bonlat's accounts for 2002, it said.

"It confirms that the group's financial structure has pathological anomalies. What we suspected has finally happened," said Andrea Paladini, analyst at Centrosim brokerage, adding there seemed to be grounds for a criminal investigation.

Parmalat's accounts up to September 30 showed cash or cash-equivalent investments worth €4.2 billion with debts of about six billion euros, but analysts have doubted the figures.

Shares in the Parma-based maker of long-life milk, juices and biscuits were suspended limit-down on the Milan bourse, showing a nearly 90 per cent fall, adding to a 60 per cent fall since Thursday last week.

Italian bank shares also fell, with Capitalia down more than six per cent and Banca Intesa off more than four per cent.

Parmalat's bond prices also fell, with the 6.125 per cent euro bond due 2010 bid eight points lower at 35 per cent of face value, a bond trader said.

Five-year credit default swaps were bid at 65 per cent upfront, meaning it costs €6.5 million to insure €10 million of debt against default.