“New” Rumasa inherits sins of the father

Floundering Spanish conglomerate Nueva Rumasa, which on Thursday said it would begin talks with its creditors to try to avoid going into receivership, misled investors about the destination of the funds it derived from promissory notes issued by companies in the group.

In the documentation presented by its food unit Carnes y Conservas Españolas (Carcesa) to potential investors, the firm said funds from its commercial paper issue would be used to buy other companies. However, Nueva Rumasa had already seen the lending tap cut off by banks after failing to repay loans, and little of the money went to acquisitions.

Nueva Rumasa launched its high-interest promissory note program on February 23, 2009, the anniversary of the expropriation in 1983 by the Socialist government of the time of the old Rumasa, which controlled 18 banks and 400 companies, after finding a massive hole in the group's balance sheet. The administration said the potential collapse of Rumasa posed a serious threat to the health of the local economy.

Over the past two years, the National Securities Commission (CNMV) had warned investors on seven different occasions about the perils of investing in Nueva Rumasa. The CNMV advised potential note buyers to inform themselves of the "legal and economic-financial situation" of the group.

Some 5,000 investors ignored the CNMV's veiled warning and invested an estimated 140 million euros in the notes. Nueva Rumasa managed to sidestep attempts by the CNMV to oversee the issue of the notes, which are not traded.

Although Nueva Rumasa did make some acquisitions of companies in financial difficulties at low prices, Carcesa's books for 2009 showed the sums derived from the note issues were not used to that end apart from the purchase of a company with a book value of only 1.7 million euros.

Instead, Carcesa used part of the funds to reduce its debt with banks, particularly short-term debt, to 18.7 million euros from 28.7 million euros. An auditor estimated that Nueva Rumasa took in 70 million euros from the note issues in 2009.

Nueva Rumasa in itself is something of a shell company, with only four employees, dedicated to "property transactions." In 2009, it had a net worth of 1.27 million euros. During that year its long-term debt rose by 40 times to 14.93 million euros, while its stated earnings fell by 98 percent to 4,623 euros. The group now owes its bankers some 76 million euros.

The founder of Rumasa and chairman of Nueva Rumasa, the 79-year-old José María Ruiz-Mateos, a devout Catholic and Opus Dei member, on Thursday dramatically pledged to kill himself if the group failed to pay back its creditors. "If we don't give back everything down to the last euro to our investors, to the people who, in a demonstration of generosity and confidence, have deposited their savings with us, I will shoot myself in the head, if the faith I profess were to allow me to do so," the group patriarch said.

Ruiz-Mateos, the father of 13 children, claimed Nueva Rumasa was being "persecuted."

Among the 10 Nueva Rumasa companies seeking to persuade creditors to avoid the path of receivership, is Spanish second division soccer club Rayo Vallecano and wine company Garvey.