Madridec bankruptcy hands 400-million-euro debt to City Hall

Madrid City Hall has approved the winding up of municipal firm Madrid Espacios y Congresos (Madridec) by the end of this year, with the resulting transfer of 400 million euros of its liabilities to its already indebted coffers.

The company is in technical bankruptcy as a result of the excessive debt it built up under former Madrid mayor and current Justice Minister Alberto Ruiz-Gallardón of the ruling Popular Party (PP), and the bad management of the administrators who headed it up.

City Hall will now take on Madridec’s debt, unpaid bills, its half-completed project to build an aquatics center, and four disused festival venues in the Casa de Campo, which will require a multi-million-euro renovation to be of any use.

The firm’s profitable assets will be passed to the new municipal company, Madrid Destino, which will also acquire the plot of land on which Gallardón had wanted to build the new Madrid conference center beside the Cuatro Torres development along Paseo de la Castellana. The move seems to indicate the land will be sold off without being built on.

How have things come to this? The municipal government of current Mayor Ana Botella, also of the PP, has admitted that the previous management of the company “could not be categorized as positive.” The current administrators consider the idea behind the firm was “political” rather than “strictly professional.” The liquidation agreement says the firm’s viability “was compromised by its significant investment effort in infrastructure.” But that “effort” is limited to three disastrous investments and a financial engineering operation.

Three deadweights. La Caja Mágica tennis center, which Gallardón unveiled in 2009, cost 294 million euros — more than double the amount originally estimated. Now City Hall admits the management of the center has been disastrous: “It is unable to reach the market share that ought to correspond to it, it is situated in an inconvenient place and is very expensive to maintain.”

The aquatics center is a shell where work has been put on hold as Madrid waits to find out if it will win the 2020 Olympic Games and is dragging along a mortgage of 50 million euros.

Meanwhile, the Madrid conference center is a financial black hole that has already cost 100 million euros and City Hall is looking to sell the land off in order for it to be turned into a shopping mall or parking lot.

As for the financial engineering operation, Gallardón passed on the usufruct of its shares in publicly owned food distribution company Mercamadrid to Madridec for 188 million euros, then used the money to proceed with his ambitious investment program when the debt had already rocketed. Madridec was mortgaged and now it cannot pay.

More municipal debt. Madridec owes 304 million euros and this year alone has to pay back 52 million. Its predicted income is much lower — 15 million euros — and will end the financial year with losses, which last year totaled 24 million. After its dissolution, City Hall will take on the outstanding debt of 283 million euros after taking off income received in the final hour from the sale of buildings. That debt, added to that of the municipal housing authority and the second government bailout for unpaid bills, will raise City Halls’ arrears to 844 million euros. It will also lose 53.3 million that Madridec owes it in unpaid invoices.

The jewels in the crown. Madridec calculated it would lose 16.5 million euros in 2014. After its dissolution, City Hall will absorb 11.3 million euros of those losses. Madrid Destino, the new municipal company that will inherit Madridec’s business and assets with no strings attached, will in exchange be able to receive additional earnings of 4.1 million euros thanks to that legacy. But above all it will be left with the jewels in the crown of the dissolved company: the Caja Mágica, which has no mortgage; the Palacio Municipal de Congresos, valued at 70 million euros and Madridec’s main source of income; and the management of Madrid Arena. It will also inherit the plot of land originally meant for the conference center, which it could sell for between 80 and 164 million euros.

Debts and contracts. In addition, Madrid Destino will receive the events contracted from 2014 onward, which add up to 14.5 million euros — the main one being the Madrid Open tennis tournament, which is worth two million euros a year up until 2017. It will also inherit the rights to outstanding payments, which amount to 26.7 million euros — though some are very unlikely to be paid — and VAT repayments of 4.6 million euros from the tax office.

And what about the employees? Some of them (16) will go to City Hall, while the bulk (56) will go to Madrid Destino, among them the six directors who earn a combined 405,000 euros a year.