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Last Updated: Monday, 26 January, 2004, 15:55 GMT
Q&A: Parmalat's debts
Parmalat products
It is Parmalat's deceptions, not debt, that are worrying investors
Parmalat, the insolvent Italian food and dairy company, has admitted that its debts are 14.3bn euros, eight times bigger than it previously claimed.

The news has cast further confusion on what was already a baffling corporate mess. BBC News Online takes a look at the affair.

14.3bn euros sounds like an awful lot of debt. Is it?

Odd as it may sound, not really.

For a company of Parmalat's size, this level of debt is high, but not catastrophic.

The reason for concern, however, is the level of deception.

The admission confirms what has long been suspected about Parmalat - that its published accounts have been little more than a tissue of fabrication.

Nor is it just debt: Parmalat also exaggerated its revenues and profits.

Long before Parmalat was pitched into administration last month, analysts had suspected it of fiddling its books.

The question for many now is going to be how much it fiddled, and for how long.

Does this make Parmalat less likely to survive?

It's important to remember that Parmalat is in administration, and so enjoys protection from its creditors.

As such, its present level of debt is, on one level, neither here nor there.

More worrying is the information about the company's cash position, which - it now turns out - was dire last year and almost certainly worse now.

Again, however, it must be assumed that the company's administrators will not allow the financing to run completely dry.

And although this week's figures have been far worse than people could have guessed, they are also not entirely discouraging about the company's fundamental prospects.

Sales of long-life milk in Italy - Parmalat's core business - are up 14% this year, the company said.

If we can believe them, that is.

So what's the next step?

Parmalat's current management, led by turnaround expert Enrico Bondi, are determined to salvage a going concern from the current wreckage.

Enrico Bondi
Mr Bondi hopes Parmalat is still a going concern
This is certain to mean sweeping sales of company assets.

And this is the real problem with Parmalat's unreliable accounting: until we have a full and complete breakdown of the company's financial position, no potential partner will touch it with a bargepole.

The information released this week goes some way to clarifying the position, but still falls short of providing a complete picture.

Such a picture cannot emerge until the current wave of investigations are concluded - something that may be years down the road.

By then, of course, it could be too late for many of the firm's 36,000 staff.

And what prospects are there for these investigations?

That's the 14.3bn-euro question.

It is becoming ever clearer that a vast fraud - possibly the biggest in corporate history - was perpetrated at Parmalat.

It now remains to establish how and by whom; the paper trail is so convoluted that establishing guilt is likely to be a maddeningly complex affair.

At the heart of any probe sit the company's banks, which for many years waxed fat on the proceeds of Parmalat's bewildering financial juggling.

As with the collapse of Enron, the closest analogy in recent history, Parmalat seems to have been fatally addicted to financial jiggery-pokery such as transatlantic currency swaps and the like.

Banks fed that addiction, and now look set to reap the whirlwind.


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