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Energy Firm Threatens to be Spain’s Largest Ever Bankruptcy

November 25, 2015

Spanish energy company Abengoa in 2007 built the first two solar power towers in the world to commercially generate electricity and deliver it to the power grid.Photograph by Cristina Quicler — AFP/Getty Images

Spain’s Abengoa started insolvency proceedings on Wednesday after a potential investor said it would not inject fresh capital into the energy firm, sending its share price tumbling by 60 percent.

Under Spanish law, companies can enter into pre-insolvency proceedings, giving them up to four months to reach an agreement with creditors to avoid a full-blown insolvency process and a potential bankruptcy.

Failure by Abengoa to reach such a deal could lead to Spain’s largest bankruptcy on record.

Spanish and international banks’ total exposure to Abengoa stands at around 20.2 billion euros ($21.40 billion), including financing for projects, a source familiar with the matter said at the end of September.

Shares in the engineering and renewables company plummeted by 69 percent when trading resumed following a more than three-hour suspension. They were down 58 percent at 0.38 euros at 1136 GMT.

Bonds lost most of their value.

Abengoa had earlier confirmed that Gonvarri, a unit of privately-held industrial group Gestamp, had backed away from a plan to inject around 350 million euros into the firm.

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

Abengoa has been trying to find new investors since the end of July, when it announced a 650 million euro rights issue of new shares to cut gross debt of some 8.9 billion euros.

Gonvarri’s interest was conditional on banks underwriting a rights issue agreed in September and it had asked the banks to inject 1.5 billion euros in to the company, sources told Reuters late on Tuesday.

Earlier this month, Abengoa’s auditor Deloitte said the group faced significant risks and its future depended heavily on a proposed investment deal with Gonvarri. ($1 = 0.9446 euros)