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Last Updated: Tuesday, 23 December, 2003, 19:24 GMT
Path paved for Parmalat rescue
Parmalat plant near Parma
Parmalat's underlying business remains sound
The Italian cabinet has amended its laws to make it easier to rescue Parmalat, the food giant which is facing a form of bankruptcy.

The government has also asked the EU to waive its rules on state aid to prevent Parmalat's woe from creating a wider dairy sector crisis.

Parmalat last week revealed a 4bn-euro (2.8bn; $5bn) hole in its accounts, leading to the tag "Europe's Enron".

A criminal investigation has been launched and the firm is expected to go into administration later on Tuesday.

A specially appointed commissioner will then be expected to draw up a rescue plan which will require state approval.

New Chief Executive Enrico Bondi is thought to be the front runner for the post and will have to decide whether or not to put parts of the company up for sale.

Milk shortage

The government has said the firm, which employs 36,400 people, is important to the Italian economy.

Italy said the change in bankruptcy laws are designed to safeguard jobs rather than help shareholders or management.

Direct state handouts banned
Short-term bridging loans permitted, but only if promptly repaid with interest
Longer-term restructuring must be at market rates
Grants are banned under all but the most exceptional circumstances
Italy wants the Commission to grant its milk industry "crisis status", allowing support funds and direct state aid

The government is primarily concerned to minimise any wider fall-out from Parmalat, which plays a crucial role as Italy's biggest food company - purchasing alone 8% of the country's milk production, for example.

Many milk producers have already cut off supplies to Parmalat, a move that threatens shortages in some areas.

The fear of shortages has led the government to ask the EU to be allowed to give money to either Parmalat or the suppliers.

Such a hand out would normally be forbidden under rules which prohibit state aid.

Under investigation

Parmalat is expected to file for administration under the new rules later on Tuesday.

Parmalat milk
Founded in 1961 by Calisto Tanzi
Tanzi family still main shareholders
Employs 36,400 workers in 30 countries
2002 revenues were 7.6bn euros
Owns Parma football club in Italy

That would give the company protection from its creditors while it seeks to restructure.

The prospect of administration has become more immediate since the launch of the criminal probe.

Talks with bankers over fresh financing for the business - which is believed to remain fundamentally sound - have been hampered by the uncertainty surrounding the company's legal position.

Four men, including three ex-finance directors and Calisto Tanzi, the company's founder, are reported to be under investigation for financial irregularities.

The probes focus on Parmalat's Cayman Islands subsidiary, Bonlat, which was last week accused of providing documents falsely showing some 4bn euros in assets.

Bank of America, which blew the whistle on the Bonlat document, has reportedly filed a lawsuit against the firm, alleging forgery.

Analysts have long been concerned about the company's fondness for complex international financial arrangements, and its heavy use of off-balance-sheet transactions in derivatives such as swaps and options.

Looking forward

Parmalat chief Mr Bondi, an expert in corporate restructuring, is looking to salvage a viable company from the financial fall-out.

Parmalat is a ubiquitous brand in Italy, and now has operations in 30 countries worldwide, especially Eastern Europe and Latin America.

Potential acquirers have already started to eye different parts of the company, which grew extremely rapidly during the 1990s.

But while most analysts feel the fundamental business is sound, its shares have been hammered by recent events.

A couple of weeks ago, Parmalat was trading at close to 2.5 euros; on Monday, it fell to 11 cents, and is currently suspended.

The BBC's Evie Akers
"The missing money first came to light last week"

Q&A: Parmalat's troubles
23 Dec 03  |  Business
Parmalat 'falsified its accounts'
22 Dec 03  |  Business
Berlusconi to shore up Parmalat
20 Dec 03  |  Business
Parmalat admits $5bn black hole
19 Dec 03  |  Business
Italian food giant on the brink
11 Dec 03  |  Business

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