Autodrome not owned by the taxpayer at all

“Portugal Capital Ventures has the green light to manage the Algarve Autodrome” so read the most recent statement from the competition commission.

News of the takeover and ownership of the Autodrome by a venture capital company responsible to the taxpayer was nothing of the sort.

Portugal Capital Ventures has been authorised to own part of a new company, Parkalgar Services, for an undisclosed investment, which is to lease the Portimao race track and karting track from the existing company Parkalgar for an undisclosed sum.

This new company is not buying anything on behalf of the taxpayer as had been suggested, and has amongst its shareholders the original management of Parkalgar, by which we assume it means Paulo Pinheiro and maybe others on the failed management team.

“The karting track and the racing track are going to be exploited by Portugal Capital Ventures,” which is not strictly the case as the new company Parkalgar Services is to lease the race tracks and operate them, not Portugal Capital Ventures which has a less than 100% shareholding in the new company.

The organisation, whose newly elected president is António Ferreira Gomes, said that the Competition Act is not compromised as Portugal Capital Ventures is to control Parkalgar Services, a newly formed company, distinct from Parkalgar which is the original promoter of those assets.

The State is in fact running two circuits, Estoril which seems to have picked up Formula 1 certification this week, and the autodrome in Portimao. Already there is conflict over pricing.

Anyway, this is semantics as the new controller of the racetrack is Portugal Capital Ventures if it owns, as suspected, more than 50% of the new Parkalgar Services company.

“Parkalgar Services will acquire exclusive control of the international racing circuit in the Algarve, the international kart track and the all-terrain track.” But the new company will only be leasing these assets and will not own them. The capital will still be held by the original Parkalgar company, so the state, i.e. the taxpayer owns nothing, but has picked up an undisclosed liability for a new lease agreement for the racetracks in what has proved to be a highly volatile business where large losses seem all too easy to achieve.

At least Correio da Manhã spotted that this ‘rescue’ deal by Portugal Capital Ventures is nothing of the sort as the new company set up to lease the autodrome is only partly owned by PCV and is only leasing the asset over which the existing creditors may well have a floating charge. Certainly the original bank, BCP, that is owed over €100 million would not want one of the main Parkalgar assets leased out for a term not yet divulged.

Parkalgar went to court to agree a Special Revitalization Plan (PER) which resulted in the 288 creditors taking a 70% haircut on monies owed and the promise that as the hotel and apartments are sold off they would get paid.
 
The process of forming Parkalgar Services allows "another step forward in achieving the PER, according to Portugal Capuital Ventures,” but without income from running racing events it may be hard for Parkalgar to finish the building work and service the existing bank debts. Its remaining income will only be from any lease payments for the racetracks from the new company Parkalgar Services. On the plus side it will not be in the position of having to cover trading losses.

This notification from the competition commission lapses into business mumbo-jumbo - “The intention is to create a stable financial framework that will allow the profitability of investments in infrastructure relevant to the regional economy and the promotion of tourism, contributing to the reduction of seasonality of the region.”

In summary, Portugal Capital Ventures is not going to own any tangible assets at the Autodrome but now has the liability of a lease agreement and for the accumulation of any trading losses.

The management of the original Parkalgar company, which needed rescuing twice, now has a minority financial interest in the new company set up to lease the autodrome and put on events. 

So the new company that was said to be rescuing the Autodrome has no assets, unless it has put money into the new venture. No real assets seem to have been transferred as this is a lease agreement. Main creditors BCP would be in a good position to protect its own shareholders by blocking any such lease of the Autodrome buildings, unless it somehow is involved in an agreement that has yet to come to light.

Without seeing a valuation of the apartments and of the hotel it is impossible to know whether the sale of these would cover the money owed to Parkalgar’s creditors.

If it does not, then the only income left for Parkalgar is from the lease agreement payments from the new Parkalgar Services company which may well be insufficient to pay off the balance. If the new Parkalgar Services company is a huge successs and money rolls in, this is of no benefit to the current creditors as the operting company is a different company to the original Parkalgar with no obligation to pay another company's debts. If it makes a mint and distributes profits to shareholders, the original Parkalgare company may hold such a small shareholding that its dividend income is insignificant when compared to its liabilities.

The question remains as to how the new Parkalgar Services will turn a €4.3 million operating loss into a €3.8 million profit in 12 months, as has been suggested by Parkalgar to the press.

The 288 creditors are still to be paid, under the terms of the existing PER agreement, from the sale of the apartments and the hotel, although Parkalgar may struggle to complete these buildings and service the debt as its primary income now is from a lease agreement for the autodrome.

Parkalgar still has underlying assets. Parkalgar Services has no known assets and the liability of a lease of unknown length and cost.

So the description of Portugal Capital Ventures buying the autodrome and running it on behalf of the taxpayer is a long way short of accurate.

Venture Capital companies normally make returns by raising, some would say inflating, the market value of their assets, so investments in property and land are foremost in their thinking. The lease agreement between Portugal Capital Ventures and Parkalgar sits outside the usual modus operandi so where is the return going to come from? 

The shareholders of Portugal Ventures are listed as

     IAPMEI - Portuguese SME Support and Innovation Institute

     AICEP Portugal Global - Trade and Investment Agency

     Turismo de Portugal - Portuguese Tourism Authority

     DGTF - Directorate General of Treasury and Finance of the Portuguese Ministry of Finance

     Banco BPI - Portuguese Bank

     Millennium BCP - Portuguese Bank

     Banco Espírito Santo - Portuguese Bank

     Banco Santander Totta - Portuguese Bank

     Petróleos de Portugal - Portuguese Oil Company

     Companhia de Seguros Açoreana - Portuguese Insurance Company

     Citibank Portugal - Portuguese Bank

     Banco Efisa - Portuguese Bank

     Montepio Geral - Portuguese Bank

     Banco BIC - Portuguese Bank

 
With so many banks represented it seems a suspiciously benign deal for those above to rely on a decent return from Parkalgar Services trading its way to profit. 

Creditors have not yet been contacted over the terms of the new deal and have no way of seeing if they have been cut out, are being fully catered for, whether they can ever expect any repayment. This lack of communication is nothing new.

The creditors focus is on the hotel and apartments, are they finished and saleable? Part of the PER agreement was for Parkalgar to be advanced a further €10 million to pay Bemposta to finish the job. This is almost exactly the amount that Bemposta is owed so why should it undertake more work and still be €10 million in debt?

Where now does the big creditor, BCP, sit on the deal? It is unlikely to have agreed to anything that would see its debt put at risk.

So many questions and, as yet, so few answers…