Paradores is a hard sell with $80M euros of debt

It will not be as easy as it looks for Spain to sell Paradores. The state-owned hotel company has serious liquidity issues and may struggle to pay off outstanding debts. These two factors could stymie plans for its privatization.

Grant Thornton, the accounting firm auditing Paradores's accounts, warns that the company's working capital fund has a negative balance of 80.2 million euros. That is to say, any near-term maneuvers will not be sufficient for covering immediate financial obligations. The situation results from losses of 41.63 suffered between 2009 and 2010, a period during which earnings dropped by 7.4% to 235.9 million euros and bank-owned debt rose by 81% to 92.3 million euros.

Paradores knows that it has liquidity problems, but it insists that there are sufficient explanations. "We have seen a gradual decline in revenues since the 2007 fiscal year, which has eroded margins," said the company's accounting department.

Other explanations for the liquidity problems stem from untimely investments made in their establishments and rising property rental fees that are paid to the state. These fees nearly quintupled between 2003 and 2009.

Questionable data

But not all the data is crystal clear. Consider, for example, that between 2009 and 2010 Paradores invested under 50 million euros, while in the two years prior, when the chain was turning profits, it invested nearly triple that amount: 143 million euros. Further, while it is true that taxes have risen a great deal since 2009, in the last two fiscal years, Paradores has not had to pay the variable portion of their taxes and 2010 rental taxes were reduced by nearly half compared to a year ago. They are now around 9 million euros.