Cimolai, over 1 billion assets in derivatives. Part of the shield from creditors

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It has entered into derivative contracts with 21 banks and brokers for a total notional value over one billion euros. Derivatives that in theory were intended to hedge the Cimolai group from currency risks (specifically the rise of the euro), but which in reality at least in some cases had a more speculative than insurance approach. And now that the euro has hit a 20-year low against the dollar, going against the gamble inherent in derivatives, these financial instruments have become a boomerang. As regards the market value, the first indications show an overall position of approximately 200 million (mark to market). In short, the Cimolai group, a jewel of Pordenone active in the sector of high-grade steel works, ended up in difficulty and presented the so-called “reservation request” provided for by the new regulations on the business crisis for protection from creditors. In the meantime, the research of investors interested in subscribing a capital increase continues and it seems that some initial evidence between Italian and foreign industrial groups is beginning to emerge. The group, the employees and the territory cross their fingers.

Construction site in progress

At work to save the group and its workers there is a bevy of consultants and lawyers: Lazard (who deals with the restructuring of the group), Ifa Consulting of Verona (which is working to decipher and evaluate the many derivatives), the lawyers Luca Zamagni of the Rimini Bar and the Molinari Agostinelli law firm who work together with the trusted consultant of the Bruno Malattia Group. But the work is still complex: derivatives must be evaluated from a legal and financial point of view, to see to what extent they served to cover the risks and to what extent they were actually speculative. Then the group will evaluate which contracts to challenge in court. The fact is that, at present, the situation is serious: for days now the group has no longer honored the requests to increase the guarantees on derivatives (the so-called margin calls) and some banks should have already declared the non-payment and asked for closure. early termination of contracts. In fact, this sends an industrially very healthy group into default: and this is why the presentation of the “booking request” is imminent.

The mountain of derivatives

It remains to answer the key question: why has the Cimolai group entered into so many derivatives? The photography (still blurred and partial) that would seem to emerge is in fact that of an activity that could be defined as compulsive. The group has entered into derivatives with as many as 21 financial institutions of all types: there are Italian banks (Bnl, Bpm, Intesa, Mediobanca and Mps), well-known foreign banks such as Morgan Stanley, Deutsche Bank or Natixis, but also brokers that the same employees at work they swear they have never heard of it before today.

But what is striking is the size of these contracts. According to rumors, the notional value (which counts for little but still gives a sense of proportion) would be more than one billion euros. It is true that Cimolai is a group that has 2,700 employees and works as many as 160,000 tons of steel structures every year in many parts of the world. However, it is not such a large group as to justify such an amount of derivatives, if we consider that in 2021 the turnover was 420.7 million euros and currently has 800 million orders. And, while working a lot abroad, it only makes 50% of its turnover (from 70% pre-Covid) outside Italy, of which over two-thirds in dollars.

If a derivative activity is justified (because these instruments are very useful to hedge a company from the risk of currency fluctuations when it operates abroad), an activity so disproportionate to the turnover in foreign currency of the group: these numbers would suggest excessive use of financial leverage. In short: they would allow us to hypothesize a use much higher than the actual needs for hedging currency risks. Also because this risk must be covered only by activities invoiced abroad in local currency, net of costs also incurred abroad: in short, the turnover represents the gross. From here it is necessary to deduct the costs incurred in foreign currency to understand exactly what the Cimolai group’s hedging needs were.