Gowex collapse casts shadow over Spain's alternative market listings (updated)
07/07/2014 15:31
* Gowex fall raises worry over other Spanish investments
* Case questions quality of market supervision, transparency
* Peers seek exit from Spain's alternative market
* Foreign investors say to be cautious on Spanish stocks
(Adds Economy Minister, shareholders filing suit)
By Julien Toyer
MADRID, July 7 (Reuters) - The collapse on Sunday of
wireless provider Gowex GOW.MC could rattle investors'
confidence in Spain and its companies just as the country
emerges from the worst of a five-year slump and foreign money
starts to flow back into it.
Gowex said on Sunday it would file for bankruptcy and that
its CEO had resigned, after acknowledging it had reported false
accounts for at least the last four years. ID:nL6N0PH0RK
The news, which stunned investors and workers, raised
questions not only about the quality of stock market supervision
but also about other companies which raised funds by listing on
the country's alternative market as they sought a substitute to
bank lending that dried up during the worst crisis in decades.
"(Gowex) is fuelling a lot of doubts and a lack of
confidence," said Nuria Alvarez, analyst at brokerage firm Renta
4. "It is generating a reputational damage."
The supervision of Spain's alternative stock exchange
Mercado Alternativo Bursatil (MAB), which was thrown into the
spotlight by the case, falls under the responsibility of both
the market operator Bolsas y Mercados Espanoles BME.MC and the
bourse watchdog Comision Nacional del Mercado de Valores (CNMV).
Economy Minister Luis de Guindos said the CNMV would review
the way the MAB operates.
"Specific controls should be established and what the
government will do is... to modify existing controls to
guarantee the information investors receive is exact and
accurate," he told journalists ahead of a meeting of euro zone
finance ministers in Brussels.
The CNMV declined to comment on whether the case would
affect Spain's reputation among investors.
On Monday morning, four companies which are listed on the
MAB - Ibercom ICOM.MC , Ebioss EBI.MC , Carbures CRBE.MC and
Eurona EUWT.MC - initiated proceedings to leave it and list on
Spain's main market as contagious concerns about Gowex sent
their own shares down between 15 percent and 20 percent.
The market operator BME itself was also under pressure, with
its shares losing 3.09 percent at 34.15 euros at around 1045 GMT
and tailing Spain's benchmark index Ibex .IBEX .
LOSS OF LEGITIMACY
This is not the first time that a company listed on the MAB,
a stock market long considered by analysts as less transparent
as Spain's main stock exchange, has run into trouble.
Earlier this year, Zinkia ZNK.MC , owner of children's TV
character Pocoyo and once another MAB success story, entered
administration, while wedding planner website Bodaclick BDK.MC
and plastic clinics group Suavitas SUA.MC have also filed for
insolvency.
Separately, MAB-listed advertising firm Nostrum and media
company Negocio were expelled from the stock exchange for not
abiding by its rules.
"It's very sad because a lot of people have lost a lot of
money... This looks like a Spanish Madoff, scamming retail
investors and making them think they were something they
weren't," said Zaryn Dentzel, the American co-founder and CEO of
Spain-based social networking service Tuenti which was bought by
Telefonica TEF.MC in 2010.
"What Gowex has done is bad for the technology sector
because the main problem that European companies have is access
to liquidity and so markets like the MAB losing legitimacy is
the worst thing that can happen," he added, although he said
Spain was still a great place to invest.
No one from Gowex was immediately available to respond to
Dentzel's comment.
Until trading in its shares was suspended on Thursday, Gowex
had enjoyed an unequalled ride on the stock market.
Its shares jumped 2,200 percent from 1.2 euros each in July
2012 to a high of 26.34 euros in April 2014, as the company
enjoyed new contracts and the backing of well-known
institutional investors.
In sharp contrast, the stock plunged 60 percent over two
days last week - wiping around 870 million euros ($1.2 billion)
off the company's market value - after a firm called Gotham City
Research alleged Gowex was misrepresenting its accounts.
SHAREHOLDERS
It is not clear whether its ex-CEO and founder Jenaro Garcia
Martin still controls Gowex, which claims to be making money in
91 cities around the world from its free wi-fi platform, through
which it sells roaming, advertising and e-commerce services.
On its web page, the company says its main shareholders as
of Dec. 31, 2012 were the firm Cash Devices SL, owned by Garcia
Martin according to Spanish public filings, and Biotelgy VC SA,
a Luxembourg-based firm which Garcia Martin said it controlled
back in 2010.
But, according to Luxembourg filings obtained by Reuters,
Biotelgy was dissolved in 2012 because it had no assets.
According to recent public filings, other Gowex shareholders
included Lazard Asset Management, JPMorgan Asset Management,
Santander Asset management, The Vanguard Group or Allianz Global
Investors Europe, among many others.
Many of these shareholders may have now sold their stakes.
"We sold all the shares we were holding in Gowex on
Thursday. We had about 160,000 shares in the company. We lost
about 65 percent after selling shares at around 7.7 euros per
share. Gowex was about 0.5 percent of our fund," one of the top
10 Gowex shareholders told Reuters on condition of anonymity.
"We will take more care in buying other Spanish stocks from
the sector."
According to Spanish shareholders association Asinver, about
5,000 small shareholders, seduced by the promise of an expanding
free wi-fi business and juicy returns, invested in Gowex and may
have lost money.
Asinver has filed a suit for false accounting and inaccurate
financial information against Gowex, Garcia Martin, the auditor
MA Auditores, BME and Ernst&Young, which advised Gowex at the
time of its listing.
Earlier this week the Spanish market operator CNMV asked the
U.S. Securities and Exchange Commission (SEC) and the UK's
Financial Conduct Authority (FCA) to provide information about
Gotham in order to analyse whether the publication of its report
could constitute market abuse.
The CNMV also said it would investigate the functioning of
the MAB. The MAB said in a statement it had decided trading in
Gowex shares would remain suspended until further notice. It
said separately it had sent Gowex's Sunday announcement to the
CNMV as it may also constitute market abuse.
Gowex workers on Monday said in a statement they were "in
shock" and were looking at possible actions to take as victims
of this situation.
($1 = 0.7331 Euros)
(Additional reporting by Sarah Morris, Jesus Aguado, Jose Elias
Rodriguez, Andres Gonzalez and Tomas Gonzalez in Madrid,
Michelle Sinner in Luxembourg, Atul Prakash in London and Adrian
Croft in Brussels; Editing by Sophie Walker)
((julien.toyer@thomsonreuters.com)(Tel +34 91 585 21
59)(Reuters Messaging:
julien.toyer.thomsonreuters.com@reuters.net))
Keywords: GOWEX STOCK EXCHANGE/