Accounts probe at impregilo

Monza's guardia di finanza-its tax authority -is conducting an investigation into Impregilo's accounting practices. The investigation centres on the company's financial statements for the year ending 31 December 2003. These included a €288,2 million loan made by Impregilo to its wholly owned subsidiary Imprepar, along with a sum of €7,8 million recorded as Imprepar's current assets, being booked as receivables due as fixed assets.

The investigation is focusing on whether this sum was booked correctly on the accounts, and whether it was adequately disclosed. Impregilo's chairman, Paolo Savona, and its chief executive, Pier Giorgio Romitti are both under investigation as part of the probe. However, this is a legal formality common to all tax investigations, and does not necessarily imply personal accusations of wrongdoing.

Impregilo decided to wind-up Imprepar in February 2003 as part of a strategy to exit non-core businesses. Impregilo describes Imprepar as, ‘A holding for all Impregilo non-strategic investments in a total of approximately 600 companies.’These companies were located both in Italy and overseas - notably in the rest of Europe, Africa, Latin America and parts of Asia, and were formed to carry out specific contracts.

At the time of the voluntary liquidation Imprepar had total assets of €573 million and total liabilities of €550 million, including a €265 million loan to its parent company. Impregilo maintains that it can reasonably expect to receive this as the liquidation of Imprepar generates cash.

Despite these assurances, Impregilo's shares dipped sharply on the news of the investigation. They lost -32% of their value, falling from €0,50 to €0,32 on November 23, before being suspended briefly in the afternoon. As CE went to print, Impregilo's share price had recovered to €0,39.

Bad Timing

The scandal comes at a bad time for Impregilo, which is currently seeking to raise up to €400 million in new capital. This is intended to fund further expansion and to help repay €550 million of bonds that mature in mid-2005. Impregilo also has access to a €500 million medium-term syndicated bank loan.

The capital increase was to be made by issuing ordinary shares and bonds convertible to ordinary shares, with a deadline of December 31, 2005. However, the value of these issues will be based on the prevailing stock market price of Impregilo shares at the time of the issue. If the share price fails to recover in time it will be unattractive to investors, and the company may fail to raise sufficient funds.