Aug. 21 (Bloomberg) -- Italy, Europe’s most-indebted nation, is dodging the global corporate bankruptcy wave as lenders, financiers and the government band together to rescue a record number of troubled companies.
Nineteen companies sitting on at least 5.7 billion euros ($8.1 billion) of debt have said since April their auditors had “significant doubts” about their ability to continue as going concerns. More than 20, among them Maserati designer Pininfarina SpA, have said they can’t pay their loans and asked banks to freeze or delay payments. Italy aims to save them all.
The strategy harkens back to Italy in the 1930s under Fascist dictator Benito Mussolini, who formed a state industrial company to bail out banks and beef up national infrastructure. Only one publicly traded company, IT Holding SpA, owner of the Gianfranco Ferre fashion house, has filed for bankruptcy protection this year, amid the worst recession in six decades. No publicly traded company has gone out of business.
“Mussolini was seen as the savior for stepping in and nationalizing banks and manufacturers after the Great Depression to avoid the economy’s collapse,” said Fernando Napolitano, country managing director of Booz & Co. in Rome. “It’s still happening.”
Banks to the Rescue
Italian banks are spearheading corporate bailouts, plowing as much as 40 percent of their assets, more than twice the European average, into troubled companies, according to the country’s banking association, ABI. About 130 lenders agreed this month to let as many as a million small and medium-sized companies postpone loan payments for a year, giving them additional liquidity of as much as 40 billion euros.
Among the beneficiaries is Risanamento SpA, developer of the Santa Giulia luxury apartment complex designed by Norman Foster near Milan. The company, which has about 2.9 billion euros in debt, is due to present a restructuring plan to a Milan court to respond to a prosecutor’s statement that it has failed. Rivals Aedes SpA and Gabetti Property Solutions SpA were also granted extensions by creditor banks. All are based in Milan.
“On paper, a lot of companies are already bankrupt,” said Arnaldo Borghesi, founding partner of corporate financial advisory firm Borghesi Colombo & Associati in Milan. “They may not be able to pay wages or their suppliers and haven’t got enough cash to keep going.”
Global Bankruptcies
So far, Italy has avoided the high-profile bankruptcies that have plagued European and U.S. companies including General Motors Corp., Christian Lacroix SNC and Waterford Wedgwood Plc.
Banks’ willingness to pledge more funds stems in part from balance sheets that are healthy compared with European rivals, said Gianfranco Torriero, head of research at ABI. UniCredit SpA, Italy’s largest bank, last year reported net income of 4 billion euros. Its nearest rival, Intesa Sanpaolo SpA, reported 2.6 billion-euro profit. By contrast, Deutsche Bank AG, Germany’s biggest lender, had a loss of 3.8 billion euros.
Lenders have been anxious to keep companies out of extraordinary administration, Italy’s version of bankruptcy protection, because their claims come after those of employees, certain suppliers and taxes, slimming a chance of repayment, said Francesco Faldi, managing associate at law firm Linklaters LLP in Milan.
Last Resort
“It is a last resort from a bank’s perspective,” said Faldi, who is specialized in restructuring, insolvency and banking at the law firm. “The administrator’s job is to put the interests of the employees, and not the creditors, first.”
While the most troubled businesses have been saved, the bailouts have claimed casualties, with some of the families that founded the companies being pushed out.
Pininfarina, founded in 1930 by Battista “Pinin” Farina, said this month it hired Leonardo & Co. SpA to sell its stake in the company, designer of Ferrari and Alfa Romeo sports cars. Creditor banks in December took control of the brand in return for writing off debt. Turin-based Pininfarina didn’t respond to two phone calls and two e-mail requests for comment.
At Mariella Burani Fashion Group SpA, Giovanni Burani, the son of the founder, was among managers replaced last month after the company requested a halt to its loan payments. Burani didn’t return calls seeking comment. Luigi Zunino, who founded Risanamento, was also ousted at the property company. The company declined to comment on his departure.
The bailout bonanza can’t mask the fact that Italian companies are suffering. Some 30 companies, most of them privately owned mom-and-pop businesses, closed each day in the first half, an increase from 21 in the year-earlier period, according to Italy’s Chambers of Commerce.
“I travel the country all the time, and small businesses are telling me that they have had to lay off workers for the first time ever,” said Giuseppe Morandini, president of small businesses for employers’ lobby group Confindustria. “Their sales have dropped by as much as 50 percent in the slowdown.”
-Bloomberg
