Spanish Grocery Giant Unveils Big Losses, Teeters on Brink of Bankruptcy, after Allegations of Accounting Fraud

What could this mean for one of its big creditors, the ECB?

Spanish supermarket chain Dia, once one of Europe’s largest grocery chains, has just unveiled its results for 2018 and they do not make for pretty reading. In what it describes as “probably its hardest year ever,” the company racked up €352 million in net losses. EBITDA (earnings before interest, tax, depreciation and amortization) of €246 million plunged by 47% from a year ago. Net sales dropped 11% from a year ago to $7.2 billion. And its total debt soared by 50% from the end of 2017 to €1.45 billion.

The firm’s shares, reduced to a penny stock, have slumped almost 90% since Jan 1, 2018. Its credit rating — investment grade until October 2018 — was cut serially to deep in junk following a succession of profit warnings.

Put simply, Dia is about as close as a company can get to bankruptcy without actually being officially bankrupt. It is, in market parlance, “technically bankrupt”, meaning that it lacks the ability to pay its obligations and would most likely qualify for bankruptcy protection but is yet to file for it in a bankruptcy court.

If Dia does go into liquidation, it will have knock-on effects not only for big Spanish lenders like Santander, BBVA, CaixaBank and Banco Sabadell and European heavyweights like Barclays, Société Générale, and Deutsche Bank, but also the ECB which holds at least €200 million worth of Dia’s debt. Due to Dia having been rated investment grade until October 2018, its bonds qualified for the ECB’s corporate sector purchase program, or CSPP

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