The crisis of the leading European agricultural trading conglomerate Baywa has deepened. With a commissioned restructuring report from Roland Berger, the management is attempting to reassure creditor banks. But this news has unsettled investors.

The commissioned restructuring report signals that the heavily indebted Baywa group is fighting for its survival. On the evening of 12 July, after the stock market had closed, the company, which belongs to the cooperative sector, announced ad hoc measures in response to this report, acknowledging a „strained financial situation.“

Baywa did not specify whether the publicly listed AG's management was prompted by pressure from the lending banks. CEO Marcus Pöllinger and CFO Andreas Helber indicated that they still maintain control. „Based on constructive discussions with financing partners and the measures implemented, the management expects that the financial situation can be sustainably strengthened. Baywa continues to pursue its consolidation course.“

However, investors were not convinced. They interpreted the news as a warning sign. Baywa's stock was trading at 13.60 on 26 July, reverting to levels last seen in July 2005. Since late 2022, the share has been on a downward trend, previously trading at over 47 euros. At the recent annual general meeting on June 11, shareholders expressed concerns over the cancelled dividend for 2023, and the significant losses. Baywa employs over 23,000 people worldwide and plays a crucial role as a supplier and buyer in Germany's agricultural sector.

In the first quarter, reduced revenues and deep financial losses contributed to a net loss of 108 million euros, which exceeded the total loss for 2023 (-93 million euros). From the end of 2023 to the end of March this year, financial liabilities increased by 169 million euros to 5.6 billion euros, with 2.5 billion euros being short-term, due within a year.

The sharp rise in market interest rates due to interest rate changes has adversely affected Baywa, given its high financial liabilities. Interest expenses alone amounted to over 97 million euros in the first quarter of 2024. The previous year's total was 362 million euros. According to the annual report, the average interest rate on variable-rate financial debts increased by 267 basis points to 4.43% in 2023.

Due to losses, the company's equity shrunk to 1.59 billion euros at the end of March. In 2023, equity declined by 205 million euros to 1.71 billion euros. Equity represented only 12.3% of the total balance sheet recently. The recent quarterly report did not disclose cash flow details. Operational cash flow in 2023 amounted to 455 million euros, with liquid assets at 233 million euros.

Pöllinger aims to steer Baywa back on course with a restructuring plan after a record year in 2022. He intends to return to profitability in the second half of the year. The restructuring involves divestments to reduce financial liabilities. However, the planned sale of the overseas solar business has encountered difficulties. Price declines in this sector have impacted margins, leading the Renewable Energies segment to report losses recently.

CEO Andreas Helber intend to manage their downsizing and restructuring without resorting to capital increases, thereby sparing the major shareholders. Bayerische Raiffeisen-Beteiligungs AG, which is backed by the state's cooperative banks, holds 33.8% of the share capital. Raiffeisen Agrar Invest AG from Austria holds 28.1%. The remaining 38.1% is in free float.

With the third-party restructuring report, pressure on management is intensifying since the assessors must provide a continuation forecast for the company as part of a significant audit. This assessment needs to be completed as soon as possible, although Baywa did not specify a timeline. Based on information disclosed to Börsen-Zeitung, Roland Berger was chosen by the corporate leadership to conduct the assessment. An external restructuring coordinator will also assist. Baywa will release its half-year results on August 8. PricewaterhouseCoopers serves as Baywa's auditors. They issued an unqualified audit opinion for 2023.

The outcome of the restructuring assessment will determine the framework for action by the creditor banks. A positive assessment could prevent Baywa from insolvency due to payment difficulties.

In 2021, Baywa arranged a syndicated loan for the first time, totaling 1.7 billion euros with multiple banks. DZ Bank, LBBW, and HypoVereinsbank coordinated the loan as bookrunners. The credit line was increased to 2 billion euros in 2022 and extended by two years until September 2025.

The high financial liabilities are the result of Baywa's debt-financed international expansion during the low interest rate period, when money was cheap. Pöllinger's predecessor, Klaus Josef Lutz, pursued this strategy to diversify Baywa and make it more resilient to crises. Apart from agriculture, Baywa operates in energy and construction sectors. Lutz handed over the CEO position to his designated successor, Pöllinger, in spring 2023 due to age-related reasons.

Subsequently, Lutz moved to the supervisory board as its chairman. But a rift occurred in January this year, leading Lutz to resign while Pöllinger remained. It is speculated that the strained financial situation was a contributing factor to the disagreement.

Since May, Gregor Scheller has served as the new chairman. As a cooperative banker and representative of the largest single shareholder, he previously presided over the Cooperative Association of Bavaria. Scheller is expected to navigate Baywa through calmer waters, leveraging his extensive connections in the financial sector to help avert Baywa's impending crisis.