Food giant admits £2.8bn forgery

EUROPE was today facing the prospect of its biggest-ever corporate fraud as Italian food group Parmalat admitted that documents purporting to show it had e4bn (£2.8bn) of cash and securities were forgeries.

Shares in Parmalat, which employs 35,000 people in 30 countries making dairy products, soups and snacks, were suspended and its bonds crashed on the shocking findings.

Newly-appointed chairman Enrico Bondi called an emergency board meeting for today after Bank of America said the documents, which had given comfort to banks and bondholders owed about £4bn, were not authentic.

'This is Europe's WorldCom,' said a bond market analyst as the company's 10-year bonds collapsed from 50 cents in the euro to just over 20 cents.

The fresh shock comes just five days after Bondi was appointed to untangle Parmalat's complex finances and restore stability to the stricken company, which also owns Parma football club. He succeeded ousted founder Calisto Tanzi

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Parmalat said today that Bank of America had told Grant Thornton, auditors to Bonlat, a Cayman Islands-based Parmalat subsidiary, that Bonlat did not have an account with the bank.

'Furthermore, Bank of America does not recognise the authenticity of a document dated 6 March 2003, which attested to the existence of positions in securities and cash corresponding to roughly e3.95bn as of 31 December 2002, owned by Bonlat,' it said.

British investors are thought to have escaped the worst of the bond and share collapse, although fund manager Britannic Asset Management has a holding in its high income bond fund.

Continental investors, both retail and institutional, are likely to have been badly hit. Shares in Italian bank Capitalia, which is owed e393m by Parmalat, fell 8%.

Parmalat struggled to repay a e150m bond last week and then delayed payment on a $400m (£225m) buyout of investors in a Brazilian unit. It was downgraded to junk last week by credit rating agency Standard & Poor's.

Bondi, a highly-regarded turnaround specialist, rescued food and chemicals group Montedison from bankruptcy and put Telecom Italia back on an even keel.

Empire built on UHT milk

IN THE heart of Italy's wealthy Emilia Romagna 'food valley', Parmalat grew from nothing to be one of the country's biggest companies.

It was founded in 1961 when Calisto Tanzi took over his father's ham and tomato distribution business. He spotted the potential of Swedish technology for UHT processing to open up a new market, bought the technology, added the name of his local town Parma to the brand and Parmalat long-life milk was born.

Now a diverse food conglomerate, Parmalat has sales of e7.6bn and a UK operation in Kendal, Cumbria. Sales in the UK, where it owns the Loseley ice cream label among other brands, are £35m a year.