For the €195 million Algarve race track project to be saved from insolvency, a recovery plan, to be presented today (Friday) in court by its owner Parkalgar, has to be approved. The company’s hopes of cashing in from property sales seem unlikely under the current economic crisis.
By INÊS LOPES ines.lopes@algarveresident.com
A plan to save the debt-ridden Algarve race track owner, Parkalgar, from insolvency and ensure the viability of its various projects, including a tourist development at the site, is being presented today (November 2) at the Portimão Civil Court.
The recovery plan, or Processo Especial de Revitalização de Empresas (PER), was prepared by Parkalgar – Parques Tecnológicos e Desportivos SA under the guidance of a provisional judicial administrator.
In a document signed by the Parkalgar administration, it could be read that the PER aims to “revitalise Parkalgar, ensuring the interests of creditors, whose support has always been indispensable to the continuation of this ambitious project”.
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The total debt to creditors by the company stands at more than €160 million, with main creditors BCP bank and Bemposta – Empreendimentos Turísticos do Algarve, SA being owed the largest sums – around €117 million and €10.3 million respectively. State debts total more than €613,000 (National Treasury €318,244 / Social Security €295,337).
Common creditors, including Formula One boss Bernie Ecclestone (€3.2 million owed to his company GP2 Ltd), Oceanational Motor (€4.9 million – owner of the Portuguese Ocean Racing Technology team) and Infront Motor Sports Organisation (€1.3 million – Superbike World Championship organisers), should have last week received all the documentation pertaining to the recovery plan from Parkalgar’s CEO, Paulo Pinheiro, himself.
The Algarve Resident had access to the PER documents, which detail the debt owed to the various creditors, debt write-offs, extension of repayment deadlines, financing mechanisms and key business objectives and strategies for the near future – all to save Parkalgar from insolvency and ensure that the race track complex, which was given the status of ‘project of national interest’ (PIN) by the government in 2007, does not die an undeserved death.
Vital to this process, aside from the approval of the PER by a quorum of creditors and the court in its first phase, is the fulfilment of financial objectives set out by Parkalgar, with special focus on the property and technology projects that were conceived to complement the race track complex.
As detailed in the company’s strategic plan within the PER, it needs to achieve “a turnover in 2013 and following years of €10.1 million at the AIA (Autódromo Internacional do Algarve) and KIA (Kartódromo Internacional do Algarve) and of €13.35 million from the sale of apartments, thus ensuring the necessary conditions for the implementation of the PER plan.” It also needs to sell plots of land within its Technology Park to ensure debt repayments.
Whether these objectives will be accomplished, particularly in the current economic climate and stagnant property market, is another matter.
But Parkalgar is confident that its business goals rely on the success of key strategies it has defined in the plan. According to the company, it needs to ensure: the year-round occupation of the race track through presentations and testing by international brands, and Racing School and corporate events; the hosting of major international races such as the Superbike World Championship, but with guaranteed financial backing; the planning of additional events at the kart track and off-road park; the reduction of marketing and promotional expenditure in general; the strengthening of cross-selling opportunities with the entity running the Tourist Complex; and the expansion of its major international events programme.
Parkalgar stated: “Being aware of the global economic situation, and particularly that of Portugal, this is, without a doubt, a major challenge for all of us but we know we have diverse competitive advantages on our side.”
It then went on to list some of these, such as the race track being “a leading product recognised worldwide by racing drivers, car brands and specialised press”; having “an experienced management team”, being an export business and so “more immune to the national market situation”, and having “high business growth potential through the Tourist Complex and Technology Park”.
€10 million to fund property projects
Parkalgar’s debt problems began in 2009 when it failed to receive more than €39 million from Irish investors to fulfil its property ambitions at the race track site.
So, one of the fundamental elements in the strategic plan of the company and viability of the recovery plan is the completion of the 160 residential apartments, whose tourist rental licences are dependent on the conclusion of the 194-room five star hotel project – these are goals that, if not attained, will hinder the success of the recovery plan.
To this end, and following an analysis of the project’s viability, a fund to the tune of €10 million has been earmarked to finance the conclusion of the apartments’ project, being carried out by Bemposta, and the construction of the hotel, through Parkalgar Hotéis e Alojamentos Turísticos SA.
When Parkalgar first announced the initiation of the PER plan in June, it had said that investments would be made “for the conclusion of tourist apartments and a hotel, vital projects set out in the initial strategy of the company”.
Bringing light to the debt problem currently being faced, Parkalgar explained in the PER that “in 2008 the company was in the process of building a Tourist Complex (160 apartments and a 194-room five star hotel), which was to be sold to Irish developer Harte Holdings, owner of several hotel, commercial and real estate projects in Europe.”
A promissory contract/agreement of purchase and sale (contrato de promessa de compra e venda) had already been signed by both parties and a deposit of €2 million paid to Parkalgar in 2007, said the race track administration company.
The apartments were to be sold for around €34.3 million while the plot of land for the construction of the hotel was set at €7 million.
However, “at the beginning of 2009, Harte Holdings initiated bankruptcy proceedings and dropped out of the deal as it became impossible to finalise it,” said Parkalgar.
Faced with difficulties to finance the construction of the hotel, “crucial to obtaining the licensing for the apartments, as well as attract buyers and make sales”, in 2011 Parkalgar sought credit lines from BCP to resume the works and reinstated the contract with hotel company Radisson, “with some adjustments”, for the running of the Tourist Complex. However, works stopped again in March this year due to financing difficulties.
If the company sells the apartments where a promissory contract has already been signed – 50 in total – a potential gross income of around €38 million would be generated, admitted Parkalgar, adding that foreign clients represent 85% of these eventual sales.
Company viability
As explained by the Algarve Resident in June, when it reported on Parkalgar’s special revitalisation programme, the PER is a tool introduced by the government earlier this year and which is applicable to companies in serious financial distress or in an imminent insolvency situation but where revitalisation of the business is still viable.
The recovery plan is part of the government Revitalizar programme, which has made €220 million available to save viable companies from insolvency.
Parkalgar said that initiation of the procedure was made viable by its two main creditors, Millennium BCP and Bemposta – Empreendimentos Turísticos do Algarve, SA.
The Parkalgar’s viability in the future is expected to reflect the company’s figures in the last couple of years. According to Parkalgar, average billing value for 2009, 2010 and 2011 totalled €11 million (including public funding) and an average EBITDA (earnings before interest, taxes, depreciation, and amortisation) in those three years of €1.4 million. In 2012, it is estimated that the company will turn over (without public funding) around €9 million with an EBITDA of €2.5 million.
Debt write-offs and settlement options
The PER also foresees partial write-off of the current common debt (70% write-off of the recognised debt) and total write-off of debt interest and compensation requests from creditors. So out of the total liabilities claimed by common creditors and recognised by the judicial administrator – around €23.5 million – a re-payment of €6.6 million is proposed in the debt repayment restructuring plan.
A write-off of €23 million from debts contracted with BCP bank has also been proposed in the plan. This means the total debt of more than €160 million owed by Parkalgar could be reduced to around €120 million if the PER is approved.
Another option to settle some of the debts is by the transfer in lieu of payment of apartments or plots of land in the future Technology Park.
|| Race track complex More than
meets the eye
The race track is just one part of the Algarve International Autodrome project, which also includes karting facilities, an off-road park, a Technology Park with 10 plots of land totalling a construction area of 60,000sqm, a 10,000sqm plot of land for a sporting complex, a photovoltaic park selling electricity to the grid and a Tourist Complex, including 160 apartments and a 194-room five star hotel, yet to be completed.
Last year the autodrome received the distinction of Superbike World Championship Organiser 2011 and previously Motorsport Facility of the Year in 2009 by the Professional Motorsport World Expo Awards. Earlier in 2007, the race track complex was given Project of National Interest (PIN) status by the government.
|| Events planned for 2013
– Inter GT Open, with F2, F3 and National Championship – May 17 to 19
– Superbike World Championship – June 7 to 9
– Superstars International Series, with Ferrari Challenge, GT Sprint and Ferrari Clienti – August 28 to September 1
– SRO Sprint Series, with National Championship
– October 11 to 13
– Algarve Classic Festival – October 18 to 20
The estimated cost of holding these events, including fees, organisation and promotion, is around €1.8 million, representing a reduction of €400,000 on 2012, confirmed Parkalgar.
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