Tuesday, February 22, 2011

A Poor Return From Nueva Rumasa

The full-page advertisements have been appearing in the Spanish press for a couple of years now, encouraging private investors to ignore the meagre offerings from the banks and put their money into a rapidly expanding company with a great future. With interest to be paid at rates of around 8% per annum, the offer from Nueva Rumasa clearly was too good to be true and last week the company announced that it was seeking temporary protection from its creditors.

Obviously those creditors include the estimated 5000 investors who bought in to the scheme and gave the company around €140 million. Sadly for these investors, it seems that they could end up at the end of the queue if the company finally goes bust; an outcome which is quite possible. The reason for this is that Nueva Rumasa was effectively offering nothing more than IOU's in return for the money, and way ahead in the queue if bankruptcy occurs are the other multiple creditors of the company which include the Spanish tax and social security agencies.

There is quite a lot of history behind Nueva Rumasa. The head of the company, José María Ruiz Mateos, had the previous (and larger) incarnation of the company (Rumasa) expropriated by the government led by Felipe Gonzalez back in 1983. The reasons given for this action had much to do with the similar circumstances surrounding Nueva Rumasa, a mountain of debt and unpaid bills. Ruiz Mateos fought many legal battles against the government and was prosecuted himself for fraud; he never got his company back.

Idolised by some as a martyr of a cruel socialist regime, he has managed to reconstruct a business empire apparently using the same principles as he did the first time. Wages are unpaid, providers are unpaid, social security and tax payments are pending, and now we have a small army of investors who are seeing what looked to them to be a fantastic offer turn into a potential nightmare. The difference this time is that he has located his companies offshore, making it even harder for creditors to get their money back.

The whole operation has the look of a Madoff style Ponzi scheme as any money made available has been used to expand the business at the expense of paying the costs of those companies that already form part of Nueva Rumasa. These companies are mainly producers of food and drink, but also include hotels and Madrid's other football team; Rayo Vallecano. Ruiz Mateos has claimed he would gladly shoot himself before seeing any investors lose their money, but that unfortunately his religion (he is a devout Catholic) doesn't permit him such an option. 

It's sad to see small scale investors faced with losing their money, but it's hard to feel too much sympathy given the obvious danger of the investment. The government commission that regulates investments warned several times about the lack of protection available to those who put their faith in don José María, nobody can claim that they weren't advised. Like those who were caught in the stamp investment fraud a few years ago, people have fallen for an offer that was just too incredible when compared to returns on other investments. If the stamp case is anything to go by, it will all turn out to be the fault of the government as investors seek to find a scapegoat for their own poor decisions. 


Lavengro said...

I seem to remember Ruiz Mateos standing for the European Parliament on the 'Vote for me so that I can get parliamentary immunity' ticket. And winning two seats!

Graeme said...

There seems to be a small, but reliable, electoral base in Spain for any dodgy populist businessman who needs a bit of protection. Think Gil y Gil, I was also reading today about yet another possible comeback by Mario Conde.

ejh said...

A shame I wasn't at the SD Huesca - Rayo match last weekend: apparently there was quite a lot of fuss made by the Rayo fans. And not only them, as farmers owed money by Nueva Rumasa poured milk in the road in front of the Rayo coach.

(And Huesca scored four times in a single game. Christ.)

Graeme said...

Huesca beat the leaders away from home the other day too, so don't knock them.

Tumbit said...

The Government are still not mentioning anything about the revenue that they will lose as a result of all the taxes the consumer is not paying on the petrol that is going to be saved. Where then will they get this revenue from instead ?

Graeme said...

I think your comment made it into the wrong post, but It's extra tax revenue from the oil price increase that wasn't budgeted for anyway. So they don't need to make it up from other sources. At least some of the tax is based on the price of the product so the more it rises the more tax is collected.