Spain shakes as Kuwaiti powerhouse stumbles: A decision to call in the receivers could lead to the loss of thousands of jobs

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The Independent Online
THE Spanish government has attacked the Kuwait Investment Office, Spain's largest single overseas investor, for its decision to call in the receivers on its huge Grupo Torras empire. Carlos Solchaga, the Economics Minister, called the decision - approved by a Madrid court two days ago - a 'judicial error'.

The Kuwaitis' decision has profound implications for the future of the KIO and for Spain's economy, as Torras is one of its largest conglomerates.

Companies with a total of 35,000 employees are directly affected by the KIO appointing receivers. Spain's two biggest unions claim a further 100,000 jobs could be affected indirectly, and that unless the KIO provides more cash, Torras will be 'paralysed' within a few days.

The crash of Torras follows six months of investigation by new managers at the KIO who are accusing their predecessors - a team composed of Fouad Jaffar, the KIO's former general manager, and prominent Spanish businessmen - of mismanagement on a massive scale. They also claim to have found a large black hole in the accounts.

Mahmoud al-Nouri, who became the KIO's manager in Spain in May this year, said the Kuwaiti government had lost Ptas450bn ( pounds 2.6bn) investing in Spain since 1986. Under his management, the KIO had spent Ptas1bn supporting Torras, but could see no way of salvaging the group.

Torras's final draft accounts for 1991, drawn up by Coopers & Lybrand, show a dollars 513m ( pounds 331m) loss, although under the previous management they had been presented as showing a small profit. Peat Marwick, which has carried out an investigation and which a year ago valued Torras at dollars 2.9bn, now says it is worthless.

The KIO's Spanish lawyers say they will take legal action 'in the near future' in connection with the former management. Stephenson Harwood, the British law firm employed by the Kuwaitis, is considering actions outside Spain and Kuwait itself, where the public prosecutor is studying the case.

Mr Jaffar, KIO general manager until March 1990, said in London last week: 'By the time I left, substantial profits had been repatriated to the KIO from Spain. The new people have refused to understand the corporate structure.'

The aim of this structure was to take profits on share dealings in offshore accounts while Torras itself was kept indebted so that interest payments could be offset against tax. But the most serious complaint of the new managers centres on the black hole found in the accounts.

Mr Jaffar's friend and former colleague Javier de la Rosa, a controversial figure in Spanish business who was vice-president of Torras until Mr Nouri took over, estimated the profits the KIO made in Spain to be between dollars 1bn and dollars 1.5bn. He said the offshore accounts were 'nothing extraordinary' and he had 'no doubt' their beneficiary was the KIO itself.

He has defended his record as the Kuwaitis' agent in Spain by saying that Torras would be in a better condition had not the sale of two Torras companies been blocked. The sales were prevented, he claims, by Fahad al-Sabah, the former chairman of the KIO, acting on instructions from Kuwait in early 1990. If they had gone through, they would have reduced the group's debts.

After the freezing of Kuwait's assets during the Iraqi invasion later that year, the KIO was able to continue operating on a restricted basis. It used its businesses in Spain as a conduit for drawing on its funds. 'I saw many movements of capital to pay countries and to pay for help, but I never saw one single amount go to the pocket of any one individual,' Mr de la Rosa said.

The most pressing question for Spain is how to stop the Torras companies collapsing altogether. Mr Solchaga says suspending the payments on the group's pounds 1.4bn of debt will not help solve the problems for which the Kuwaitis are responsible. Their position as a majority shareholder, as in the case of Torraspapel, the country's largest paper manufacturer, or as a holder of the dominant stake, as in Ercros, the biggest chemical group, still leaves those companies highly vulnerable. The situation is complicated by the fact that the KIO is the largest creditor, with some 70 per cent of the debt owed by Torras.

The government is keeping up high- level meetings with Kuwaiti officials, and sent an envoy to Kuwait this weekend.

(Photograph omitted)