Pescanova: Troubled Times of the World’s Biggest Commercial Fishing Company

RS Pescanova LogoBeginning in the 1960s as a single boat operation the Spanish-based fishing company Pescanova S.A. led the way in pioneering the use of high-tech freezer trawlers and factory ships. Using this technology to expand aggressively, Pescanova eventually became one of the world’s largest fishing companies processing around 150,000 tons of fish and fish products each year with operations across the globe. However, while Pescanova’s aggressive expansion led to huge profits the company eventually ran into trouble. Today a combination of immense debt, falling fish prices, a world-wide recession and a large-scale fish farming disaster Pescanova is teetering on the edge of bankruptcy, and the future of the company looks very shaky indeed.

Origins of the Company

Pescanova was founded in 1960 in Vigo in North West Spain by Jose Fernandez Lopez. He was originally a butcher and saw the efficiency that was gained in the meat industry by freezing products and formulated a plan to transfer these ideas into the commercial fishing industry. He began putting his plan into action and by 1961 he had been fitted out a large 500-ton trawler with a freezer system – creating the worlds first ever freezer trawler. The vessel – Lemos – was able to process and store 250 tons of fish in frozen form. However, while other vessels would have to return to port after a few days to unload their catch before it spoiled, the freezing abilities and size of the Lemos meant that it could continue to fish for weeks at a time until its hold was full.

Rapid Expansion

Throughout the 1960s Pescanova continued to expand. Five other freezer vessels soon followed, with all of these being bigger, some as large as 1500 tons which were able to hold 1000 tons of fish (1). More and more vessels were added to the fleet with more, and ever larger, freezer vessels commissioned, and a 150-metre ocean liner bought and transformed into a floating fish processing and filleting factory. By the end of the 1960s Pescanova had over 100 fishing vessels in its fleet and operated on a world-wide basis.

Pescanova's headquarters

Pescanova’s headquarters in Vigo, Spain.

However, a change in international law threatened to derail the expansion plans of the company. The EEZs (Economic Exclusion Zones) of many countries were expanded from 12 miles to 200 miles – meaning that Pescanova’s vessels would have to stay well outside of many of the world’s best and most profitable fishing grounds. However, Pescanova had a simple solution to this problem. The company expanded further and set up subsidiaries in many countries, especially those in Africa. This allowed Pescanova access to the quotas (maximum allowable amount of fish which can be caught) of these countries and allowed them to operate within the EEZ of these countries (2). Throughout the 1970s and 1980s the expansion continued with Pescanova setting up subsidiaries in countries such as Chile, Argentina, Scotland, Australia and several African countries. Attracted by the money and employment that Pescanova would bring these countries were only too happy to welcome Pescanova and grant the giant freezer trawlers access to their fishing grounds, with little thought given to the sustainability or damage to fish stocks which such vessels would cause.

A Change of Strategy

By the 1990s Pescanova was the biggest fishing company in the world, and Jose Fernandez Lopez had retired, passing control of the company to his son Manuel Fernández. He continued Pescanova’s rapid, and at times aggressive expansion. However, eventually saturation point was reached, with pressure on world fish stocks meaning that Pescanova’s annual catches had plateaued at around 110,000 tons per year (2). To continue the expansion Fernández branched off into fish farming while continuing to operate the freezer trawler fleet. The fish farming was also expanded rapidly, with salmon farms set up in Chile, prawn farms in Africa and turbot farms throughout Europe. Very quickly Pescanova’s fish farms covered tens of thousands of square acres across the world.

Diversifying into fish farming was a potentially lucrative source of income – the production of farmed fish doubled between 1996 and 2006 and today fish farming is worth $80 billion a year, and is set to rise by another 70% by 2030 (3). However, the expansion into this industry was problematic for Pescanova. Building the fish farms was extremely expensive, while operating and maintaining fish farms is labour and capital intensive. Furthermore, the rewards are deferred as it takes most species of fish at least three years to grow from hatchlings to a marketable size. This meant that Pescanova had to borrow heavily to develop the infrastructure of their fish farms. There are also a whole host of environmental and sustainability issues associated with fish farming, see this article for further information on this topic.

Troubled Times lead to Insolvency

Turbot farm

The turbot farm disaster cost Pescanova around €70 million.

The Sunday Times reported that in its most recent annual report Pescanova boasted of “more than 50 years of uninterrupted organic growth” (2). This may have been true but the expansion into fish farming had loaded the company with debt, but a perfect storm of events was coming which would lead the company into serious trouble. In February 2012 disaster struck Pescanova’s giant €140 million fish farm in Mira, Portugal. The farm produced around 7000 tons of turbot each year, raising the stock in vast saltwater tanks which pumped in water from the sea to aerate and filter the tanks. However, the hydraulic system the fish farm relied on somehow sucked in sand from the sea which resulted in the pipes becoming blocked. Without the aeration system functioning properly the tanks were starved of oxygen and the entire stock of turbot – worth around €30 million (£25m) – suffocated. Pescanova claimed that overall the accident cost the company over €70 million  (4).

Pescanova had other problems as well. The prices of salmon – one of the companies main profit making fish – fell dramatically due to worldwide oversupply, just as production of Pescanova’s farmed salmon had been ramped up in Chile. This led to problems with cashflow, eventually leading to Pescanova raising €170 million in a share sale in summer 2012 (1), and selling two giant prawn farms in Ecuador. However, bigger problems were just around the corner. Questions were asked about the amount of debt the company was carrying. Rumours abounded that in addition to the €1.5 billion of debt the company had there could be that much again hidden in the company’s many foreign subsidiaries (1).

In early May 2013 Pescanova filed for insolvency. Deloitte were appointed as administrators and soon after it was reported that Pescanova’s level of debt was reported as being at least €3.3 billion, and potentially as high as €4 billion. The board of the company had been made to step down from their duties, and the chairman Manuel Fernández faces an investigation of alleged insider dealing due to selling €31.5m worth of shares just weeks before the company filed for insolvency (5).

Is There a Future for Pescanova?

Pescanova received a loan of around €55 million from creditor banks in May 2013, allowing the company to continue to operate in the short term, but the debt levels mean that the company may not survive, or if it does it will almost certainly be owned by its creditors. Of its current €4 billion debt, €1.9 billion is owed by Pescanova itself, €400 million by Spanish subsidiaries, €700 million by foreign subsidiaries and an additional €1 billion owed through bond issues (6). Creditors include several Spanish banks (6), and Britain’s Royal Bank of Scotland (1).

There are two courses of action for Pescanova. The first involves the entire company being broken up and its large freezer vessels, fish farms and other shore based assets being sold off in order to repay debts. It is thought this would raise approximately €2 billion (1). A more likely scenario, however, would involve much of the debt being written off in return for the creditors taking over control of the company.

Summary

The fate of Pescanova shows how much the world of commercial fishing and big business are intertwined. While the image of a grizzled old skipper going to sea to earn money to feed his family persists the reality is that much of the commercial fishing which goes on is funded and controlled by big business. The size of Pescanova shows how much money can be made by industrial scale fishing, and goes some way to explaining how the commercial fishing industry manages to have so much power and support behind it. The Pescanova story also shows how large companies must continue to grow in order to continue to create profit for their shareholders and pay back the money they have used to expand. With so much money involved, and such a diffuse range of business interests to keep happy is it any surprise that sustainability and concern for fish stocks are rarely on the agenda?

This article was written in late 2013.

References:

  1. About Us/History – Pescanova.com
  2. Hooked on Expansion, Sunk by Death – The Sunday Times, Business Section, 14/4/13
  3. Will Farmed Fish Feed the World? – Worldwatch Institute
  4. Pescanova’s Debt Pile – Euroweeklynews.com
  5. Deloitte Named Pescanova Administrator, Debt Pinned at €4bn – Undercurrentnews.com
  6. Pescanova Saved by Creditor Banks with €55bn Loan – FIS.com
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