The existential crisis at Baywa
Baywa is facing a major crisis. The commissioned restructuring report by the heavily indebted agricultural trading conglomerate is akin to an admission that the management is at its wits' end regarding the company's restructuring. Apparently, CEO Marcus Pöllinger and CFO Andreas Helber felt compelled to take this step to appease creditor banks, and regain lost trust. Among the lending institutions, there is deep concern that the Munich-based SDax member may soon struggle to meet its obligations on time.
The severity of the situation is evident from the latest mandatory disclosure by the cooperative sector-owned AG, acknowledging a „strained financial situation“. Investor reaction at the start of the week couldn't be clearer: Baywa's stock plummeted by more than a third, dropping to levels last seen in July 2005.
Interest rate turnaround hits hard
The recent financial data of the deeply indebted company paints a picture of a self-inflicted existential crisis: by the end of March, financial debts soared to a record high of 5.6 billion euros, with over 40% being short-term. In the first quarter, interest expenses (93 million euros) predominantly contributed to the pre-tax loss (154 million euros).
The interest rate hike, reflecting increased market rates, has hit Baywa hard. Another deficit is expected for the second quarter of 2024. It appears the company's leadership did not effectively adjust the debt structure to match the changed market conditions earlier. The short-term liabilities clearly remain disproportionately high.
Creditor banks now in charge
This oversight is now proving costly. With the assistance of consultants from Roland Berger conducting a thorough review of Baywa, Pöllinger is attempting to turn the situation around. The company's future hinges on their assessment of its ongoing viability, primarily directed at the lending institutions.
In essence, Baywa's fate lies in the hands of the creditor banks, who have the final say in this matter. The management's ability to act independently is significantly curtailed. The corporate executives are now facing the repercussions of the company's largely debt-financed expansion during the period of low interest rates.
