Spain’s Martinsa denies crisis just before collapse
The giant property group told regulatory body that the economic downturn posed no threat to its operations.21 July 2008
MADRID - Less than a month before Martinsa-Fadesa filed for bankruptcy, the Spanish real estate group denied in regulatory filings that its business was under threat from the economic downturn that began in 2007.
The denial was included in the group's 2007 corporate governance report under a section in which listed companies are asked to evaluate the operational, financial, technological, tax and legal risks that have emerged over the previous 12 months.
The report was presented to Spain's CNMV stock market regulator on 16 June, less than a month before Martinsa-Fadesa announcement last Tuesday that it is going into receivership.
In the document, Martinsa-Fadesa fails to acknowledge any risks to its business as having emerged during 2007, even though in that same year Spanish home sales plunged, the Euribor interest rate shot up and banks tightened lending conditions in the wake of a global credit crunch.
With EUR 5 billion in debt, a vast portfolio of unsold properties and other home-building projects underway, Martinsa-Fadesa was clearly at risk from any changes affecting Spain's overheated housing market or its ability to obtain more financing.
Indeed, it was precisely the group's failure to secure a EUR 150-million loan as part of a debt refinancing package that led to it filing for bankruptcy, becoming Spain's largest ever corporate collapse.
Nonetheless, the group assured regulators that it has "no significant credit risk".
Martinsa-Fadesa is not alone in glossing over the risks to its business in corporate filings, however, the failure of executives to acknowledge the threats will add weight to any legal claims against them from shareholders and creditors.
[El Pais / Miguel Jimenez / Expatica]