Parmalat Finanziaria, the Italian dairy company that has unsettled investors in recent months with rising debt and the surprise resignation of its chief financial officer, gave stock and bond holdersanother scare Monday with the announcement that the company had not yet received a $589.9 million payment that should have been made Thursday.
Parmalat should have received the payment Thursday for the sale of its stake in Epicurum, a hedge fund based in the Cayman Islands. Parmalat said Monday it did not know when it would receive the payment. The company also said it had not decided what action, if any, it would take to protect its interests.
The statement came the same day that Parmalat was due to pay back a 150 million, or $183 million, bond. Parmalat could not be reached for comment Monday, a national holiday in Italy. Companies generally have several days after a bond comes due before they are required to make the payment.
The announcement Monday by Parmalat, which had sales last year of 7.59 billion, is the most recent in a string that has left investors wondering if the company will be able to pay back the more than 6 billion it owes. Apart from the bond that came due Monday, Parmalat has about 1 billion in debt that must be paid back in the next year and an additional 4.05 billion that comes due in the four years after that.
Parmalat owed 6.04 billion and had 4.22 billion in liquid assets at the end of September. While that liquidity would normally give investors confidence in the company’s ability to pay its debts, some investors and analysts have questioned the decision to have so much cash on hand when debt is so high. Parmalat, which has increased sales tenfold in the past decade in large part due to acquisitions, says the liquidity gives it financial flexibility.
There is some question as to how much flexibility the liquidity actually gives the company since Parmalat has to service the 6 billion in debt and runs the risk of having higher borrowing costs in the future. Standard & Poor’s last month put Parmalat’s credit rating, already at the lowest investment grade, on credit watch for a possible downgrade to junk status.
The Italian Exchange suspended Parmalat stocks and bonds from trading on Monday and Tuesday in anticipation of a statement that was to be released after a board meeting on Tuesday. The Italian stock exchange was open Monday despite the national holiday.
The resignation last month of the chief financial officer, Alberto Ferraris, who had held his post for less than a year, came the same day that the company said debt had risen 13 percent in the three months to Sept. 30. Sales were little changed in the third quarter. In 2002, sales dropped for the first time in more than a decade.
Parmalat’s liquidation of its stake in the hedge fund, and planned sales of assets like the U.S. brands Mother’s Cookies and Archway, are part of a program to cut debt by 1 billion by the end of 2005.