Solar Company On Verge Of Spain’s Largest Bankruptcy

By Paul Homewood

http://elpais.com/elpais/2015/11/26/inenglish/1448550150_453924.html

Stranded assets, Mr Carney?

El Pais report:

Spanish renewable energy company Abengoa on Thursday applied for preliminary protection from creditors and called in lenders to start negotiating the terms of an agreement that would prevent a definitive suspension of payments.

In accordance with Spanish insolvency laws, the company has four months to reach an out-of-court agreement with its creditors.

Abengoa is on its way to becoming the biggest bankruptcy case in Spanish business history – even bigger than the fall of real estate giant Martinsa-Fadesa.

While the Seville-based firm desperately seeks a new deal with its creditors or a new investor to shoulder part of its €8.9 billion of gross financial debt, it is also asking bondholders to group together into a committee to renegotiate the debt.

“The committee is necessary in order to manage our commitments in an efficient manner,” said a company spokesperson.

Meanwhile, shares in the renewable energy and engineering giant continued to plunge, registering losses of up to 25 percent on Thursday – its last day of trading after the Ibex 35’s technical committee decided to take Abengoa out of the blue-chip index.

“Many bondholders are now selling,” confirmed Stuart Stanley, of Invesco Asset Management. “If nobody is willing to intensify their positions, then who’s going to help Abengoa? Right now, the company needs a white knight.”

On Wednesday, the company informed the United States stockmarket watchdog, the Securities and Exchange Commission (SEC), that Javier Garoz, head of the US unit, was leaving the group.

Abengoa, which is made up of around 650 businesses, did not explain the reasons for Garoz’s departure.

Meanwhile, Spanish Industry Minister José Manuel Soria said on Thursday that he hoped Abengoa would be able to save itself, but noted that it is a private company.

“The government is closely following all steps being taken, but the case affects a company from the private sector, since the government is not in the position of the National Industry Institute, in which the state could inject capital into this and that company,” said Soria in an interview with state broadcaster TVE.

Soria called Abengoa “a business of reference in Spain” in the field of renewable energy. The company has a workforce of 27,000 employees and three quarters of its business is conducted outside Spain.

Employment Minister Fátima Báñez on Thursday guaranteed that the government would help seek a solution “with a future” for Abengoa and called on all parties involved to “negotiate and dialogue to the point of exhaustion.”

Báñez said that the government “wants to help with that dialogue” and called Abengoa a “very important company, not just because of the number of workers but also because it is one of the most innovative businesses in our territory.”

The Washington Times also picks up the story:

If you were wondering what the Spanish word for “Solyndra” is, this week provided the answer: “Abengoa.”

Abengoa is a Spanish company that was another of President Obama’s personally picked green energy projects, and it’s now on the verge of bankruptcy too, potentially saddling taxpayers with a multibillion-dollar tab and fueling the notion that the administration repeatedly gambles on losers in the energy sector.

The renewable energy firm, which is constructing several large-scale solar power projects in the U.S. and has received at least $2.7 billion in federal loan guarantees since 2010, said Wednesday it will begin insolvency proceedings, a technical first step toward a possible bankruptcy.

The news comes at an especially awkward time for Mr. Obama. On Sunday he’ll travel to Paris for a historic climate change summit and is expected to call on world leaders to reject fossil fuels and spend heavily on renewable energy, including solar power.

Abengoa’s looming demise is eerily reminiscent of the fall of solar power firm Solyndra in 2011, a colossal failure of government investment that left taxpayers on the hook for more than $530 million.

A potential Abengoa bankruptcy could be much worse for taxpayers, although it’s unclear how much of the guaranteed loans the company has paid back. Neither the White House nor the Energy Department responded to requests for comment Wednesday seeking information on how much the company still owes on the loans, for which the federal government might be left on the hook.

Critics say Abengoa is yet another reminder that the administration’s meddling in the energy sector — and its insistence that, with enough government financial backing, ambitious renewable projects can compete in the free market — leads to disaster for taxpayers.

“When you have a company that is based on subsidies, it is no surprise they run into financial trouble because their business model isn’t based on economics; it’s based on politics,” said Daniel Simmons, vice president for policy at the conservative Institute for Energy Research, a leading critic of the administration’s spending on renewable fuels and of the president’s energy policy more broadly.

“The government money fueled Abengoa’s growth. They fueled their desire to take on more debt. It’s now obvious they have a very serious debt problem,” Mr. Simmons added. “What is troubling is that if there are large projects that private-sector people think they’ll be able to make money on, there’s no need to take those projects to a government. That’s where these projects go wrong: thinking governments will necessarily make good investment decisions.”

Wednesday’s news sent Abengoa’s stock price falling by about 60 percent. International banks’ total exposure to a full Abengoa bankruptcy stands at about $21.4 billion, according to Reuters news agency, meaning the company’s downfall would end up being the largest bankruptcy in Spanish history.

The announcement came after private Spanish backers said they were bailing on plans to pour hundreds of millions of dollars into the company.

Company officials say they’re continuing to work with creditors in the hopes of staving off a full-on bankruptcy filing.

“The company will begin the negotiating process with its creditors with the aim to reach an accord to guarantee the financial viability under Article 5 of the Bankruptcy Act, which the company intends to request as soon as possible,” Abengoa said in a statement.

The company has received loans from governments around the world. In the U.S. the administration awarded the company about $2.7 billion for two majors projects — the Solana Generating Station in Arizona and the Mojave Solar Project in California.

Mr. Obama personally touted the company in 2010 in an attempt to justify to taxpayers why he was committing nearly $1.5 billion to the Solana project.

“In the short-term, construction will create approximately 1,600 jobs in Arizona. What’s more, over 70 percent of the components and products used in construction will be manufactured in the USA, boosting jobs and communities in states up and down the supply chain,” the president said on July 3, 2010. “Once completed, this plant will be the first large-scale solar plant in the U.S. to actually store the energy it generates for later use — even at night. And it will generate enough clean, renewable energy to power 70,000 homes.”

But the Solana project has run into a multitude of hurdles. The Arizona Republic reported earlier this year that the plant has fallen far short of its targets, generating about 603,567 megawatt hours of electricity in 2014 as opposed to the projected 900,000 megawatt hours. The project came online in 2013.

Throughout the construction process, subcontractors also alleged that Abengoa routinely changed plans on the fly and sometimes failed to make payments, creating a frustrating and confusing situation on the ground in Arizona. More than a half-dozen subcontractors have been involved in payment disputes with the company, according to the Arizona Republic.

Abengoa and its public relations representatives have maintained that, with a project the size of Solana, such disputes are inevitable, and the company has worked hard to resolve them as soon as possible.

Moving forward, critics such as Mr. Simmons believe the administration may, for public relations purposes, back away from further renewable energy investment in the short-term.

Eventually, however, he argues Mr. Obama and his deputies will continue to put taxpayer money on the line in the name of fighting climate change.

“There might be a pause, but the administration believes it is smarter than private investors,” Mr. Simmons said. “They will continue to make these sorts of investments, subsidies, because they think they know best.”

Remember those words – When you have a company that is based on subsidies, it is no surprise they run into financial trouble because their business model isn’t based on economics; it’s based on politics.

We keep being assured that solar technology can compete against fossil fuels. But if it could, Abengoa would not be on the verge of bankruptcy.