Accounting scandal hooks Spanish frozen fish giant

It boasts a fleet of 100 ships and 10,000 employees worldwide but suspected fraud at frozen seafood giant Pescanova is causing an embarrassing stink in export-hungry Spain. After years of posting growing sales, amounting to 1.7 billion euros ($2.2 billion) in 2011, the group that was among the world industry's leaders and the pride of the northern region of Galicia has plunged into scandal. One evening in February, Pescanova was forced to reveal that it could not publish its 2012 accounts. Two months later, on April 25, it filed for bankruptcy. "That was a surprise," said Francisco Vilar, regional secretary of the food-processing federation of the main union at Pescanova, the Workers' Commissions (CCOO). "People who work here have been here for 30, 40 years, with good management. So it was an enormous surprise." Pescanova is accused of false billing, hiding a debt of 3.3 billion euros that was more than double the declared figure, and its top managers of selling shares just before the scandal broke. "It's Enron, Spanish style," said one banking source, referring to the giant US energy group that collapsed in the 2000s in one of the biggest financial scandals in US corporate history. "There was a tangle of subsidiaries set up solely and uniquely to hide the debt," the source said. The group had more than 100 offshoots, in many of which the group held less than 50 percent of the equity to as to avoid including their debts in its accounts. To pay for an all-out investment programme, from salmon farms in Chile to prawn preparation centres in Ecuador, the group "would go to different banks in the world to ask for credit, using the image and reputation of Pescanova, and everyone gave it to them, which was logical because they were industry leaders," said one source close to the company. Banco Sabadell, Banco Popular, Deutsche Bank, Commerzbank, but also banks in Namibia, Bolivia, or the island of Mauritius: more than 100 banks loaned money to the frozen fish giant, which boasts of inventing refrigerated shipping in the 1960s. Now the Pescanova president, Manuel Fernandez de Sousa, is being investigated for suspected false accounting and insider trading. Auditors Deloitte and KPMG have been tasked to look into its accounts. A KPMG report made public Wednesday was damning. "In the last financial periods, practices were designed and set up whose object was to present a group financial debt smaller than the reality and, as a consequence, results that were larger than those actually generated," KPMG said according to a statement to the stock market regulator. "It is a tough lesson, we should have suspected something," said the banking source, adding that it was difficult to see the problems in a company whose results are audited annually. "We are speaking about a listed company, not a family business that has fewer legal obligations!" the source added. Manuel Fernandez de Sousa, who denies any embezzlement and admits only to making mistakes, admitted in a statement that Pescanova "was created and expanded almost without capital thanks to banking credits, like the great majority of Spanish companies". "That has always been our weak point and it still is." At the end of June, the group secured an emergency loan of 56 million euros. No foreign bank wanted to take part. "That's not a good sign," worried the banking source, while Spain, whose banks are being recapitalised with European financing, is struggling to regain market confidence. The scandal "does great damage to a country's credibility," said Joaquin Yvancos, lawyer for more than 100 small shareholders suing the management including a US fund and investors from Costa Rica. "We are not talking just about Pescanova but the Spain brand," he said, adding that it came at the "worst time" when the country was trying to persuade investors to return. "Pescanova is a multinational with a well-known brand and when this kind of thing happens it is never good," the Spanish stock market regulator's president Elvira Rodriguez said recently. "It is one of the world's main fishing groups," said Alberto Roldan, analyst at Lloyds Bank. "This very unfortunate affair tarnishes businesses' efforts to be more international," he added. "It is hard to properly measure the enormous damage caused by Pescanova to Spanish industry."