Parmalat facing battle for survival

ITALY’S biggest food company, Parmalat Finanziaria, may seek bankruptcy protection from creditors this week after the disclosure that a $4.9 billion bank account didn’t exist.

Bonds sold by the maker of Archway cookies and Pomi pasta sauces are trading at as little as 20% of face value, suggesting investors don’t expect to get paid in full. Parmalat, which had an investment grade rating from Standard & Poor’s at the start of the month, is now rated at D, or default status.

“Filing for bankruptcy protection is the way forward to guarantee that the company continues operating,’ said Gianni Bizzarri, chairman of Ifigest Fiduciaria Sim, a fund manager.

Bankruptcy would threaten 36,000 jobs at the Milan-based company as well as the repayment of €2 billion ($2.5 billion) of bank loans and about €4 billion owed to bondholders.

Banca Intesa SpA, Italy’s largest bank, Capitalia SpA and UniCredito Italiano SpA, have loaned more than €900 million to Parmalat and are among the banks with the most money at stake.

“We’re expecting the worst,” said Giancarlo Cerza, vice president of investments at Wachovia Securities Inc. in Los Angeles, which doesn’t own Parmalat securities.

“The banks would have to get in line to get repaid, and this could take years.” Parmalat’s board meets today to review the situation, according to a statement distributed by the Italian stock exchange.

Prime Minister Silvio Berlusconi said on Saturday the government will protect jobs and the Italian dairy industry. The company may file the request as early as today.

Gian Guido Oliva, a Parmalat spokesman, declined to comment on the company’s plans.

Prosecutors in Milan and Parma are investigating what went wrong at the company. Parmalat said it would collaborate with the probes.

Chairman Enrico Bondi will cooperate with authorities, “including those responsible for criminal matters,” Parmalat said last week. Prosecutor Francesco Greco, who specialises in financial crime, accompanied tax police on Saturday to search the Milan office of auditor Grant Thornton.

“It’s the closest thing to Enron that’s happened in Italy and perhaps in Europe,” Vincenzo Visco, a former finance minister, said in a telephone interview.

Grant Thornton was the auditor of Bonlat Financing Corp., a Parmalat-controlled financing company based in the Cayman Islands that claimed to have money in the Bank of America account.

Parmalat, founded in 1961, grew from a family salami maker based near Parma to a global food company with annual sales of €7.6 billion. Its brands include Santal juices and Chef sauces.