Oct. 6 (Bloomberg) -- Parmalat Finanziaria SpA Chairman Enrico Bondi refused to honor five currency contracts worth 241.6 million euros ($297.6 million) that UBS AG bought from the dairy in the four months before it collapsed in Italy's biggest bankruptcy.

Bondi said Zurich-based UBS, Europe's largest bank, wasn't entitled to a 25.16 million-euro profit on the options because they aren't enforceable under Italian law, according to court filings obtained by Bloomberg News. Options are agreements to buy or sell currency at a preset rate on a fixed date.

Milan prosecutors probing Parmalat are considering whether executives including founder Calisto Tanzi used the sale of options and swaps to banks including UBS to hide losses and debt. Parmalat raised 120 million euros from such sales in 2003, according to a report prosecutors will cite during legal proceedings against Tanzi and 28 others that opened yesterday.

``It's reasonable to conclude that the operations carried out by Parmalat weren't really to cover currency risk or exchange-rate fluctuations but just to raise cash,'' Stefania Chiaruttini, a Milan-based financial consultant, wrote in a 445-page report she prepared for the prosecutors in June.

UBS disputed that, saying its contracts, two of which dated to the 1990s, ``cannot be seen as a means to raise cash.''

``UBS understood Parmalat's intention in carrying out these trades was to cover their currency risk and/or exchange-rate fluctuations,'' said David Walker, a spokesman for the bank in London, who also called Chiaruttini's report flawed.

``We find it polemical and we strongly disagree with many of its arguments and conclusions,'' Walker said. ``In many respects, we find it to be inaccurate.''

Chiaruttini declined to comment.

Bondi's Strategy

UBS doesn't face charges in the Milan court proceedings, in which prosecutors will attempt to show that former Parmalat managers, abetted by some bankers and auditors, manipulated the market by hiding debts and losses and fabricating assets.

Bondi, Parmalat's government-appointed administrator, is rebuffing claims in a drive to rescue the company, which sells goods such as Archway Cookies in dollars and Black Diamond cheese in British pounds. His refusal to honor the UBS options appears in one of three filings to a court in Parma, Italy, in which he denies 61.4 million euros of claims from the bank. Italian law allows Bondi, who turned 70 yesterday, to terminate certain contracts.

``He's relying on a general principle in all Italian bankruptcy law,'' said Paolo Criscione, a partner in the Milan office of Lovells. The bank has no real legal recourse against the decision, he said, because ``the law leaves it to the trustee or administrator to decide.''

UBS wouldn't comment on that or say whether it would press its claim in court. Bondi declined to comment.

Rebuffed Claims

Altogether, Bondi has rebuffed 74 percent of 5.7 billion euros in claims put forward by Parmalat's former lenders, according to a Bloomberg analysis of creditor data filed at the Parma court. He has excluded 99 percent of all claims from U.S. lenders, including Citigroup Inc. A Parma judge has until mid- November to make a final ruling on the rejected claims.

The court filings on UBS show that Parmalat's former managers sold the five contracts to the bank between August and early December 2003, at a time when Chiaruttini says the company was struggling to raise cash and hide losses. UBS and Parmalat signed the last contract Dec. 2, three weeks before the dairy filed for bankruptcy protection after disclosing that a 3.95 billion-euro bank account didn't exist.

`Inevitable Crisis'

UBS said the sales didn't raise cash for Parmalat on those dates because the transactions just ``rolled over'' old contracts, meaning no money changed hands. Two of the options date to the 1990s, Walker said. The other three were originally agreed earlier in 2003. UBS, in essence, was allowing Parmalat to delay payment on losses accumulated from trades placed months and years earlier.

``What you're seeing is somebody postponing an inevitable crisis'' inside Parmalat, said Marco Elser, principal of Advicorp Plc in Rome, who traded options at securities firm Donaldson Lufkin & Jenrette in the 1970s.

By the time three of the contracts rolled over in November and December, Parmalat securities were plunging on news that Deloitte & Touche SpA had questioned the company's accounts. Given the circumstances, UBS ``should have demanded the money'' owed under the contracts, not rolled them over, Elser said.

Call Options

Bondi's refusal to honor the contracts came in response to five letters the bank sent to Parmalat between Feb. 23 and April 1 this year, the filings show. In each case, UBS said it was exercising its rights under call options in which Parmalat agreed to pay euros for dollars or pounds at preset rates.

Under the contracts, UBS was betting the euro would rise above 63 pence and above $1.09, $1.11 and $1.14. Parmalat managers, who gambled on the opposite, lost the wagers as the euro rose above 66 pence and $1.24.

That obliged Parmalat to pay UBS a total of 241.6 million euros in five payments between Feb. 25 and April 5 this year. In exchange, UBS was to give Parmalat five payments totaling $180 million and 50 million pounds. UBS would have made 25.16 million euros on the exchanges.

Bondi's rejections come on top of a lawsuit he filed against UBS in August, seeking to recover 290 million euros from a transaction linked to the 2003 sale of two Parmalat bonds with a combined nominal value of 420 million euros.

UBS has denied wrongdoing in that deal. ``We believe that the transaction in question was entirely valid and therefore any effort to declare the transaction invalid will be met by a vigorous defense by UBS,'' spokesman Walker said at the time.

To contact the reporters on this story: James Pressley in Brussels at jpressley@bloomberg.net.

Last Updated: October 6, 2004 02:35 EDT