MADRID—Spanish renewable energy and engineering firm Abengoa SA said on Wednesday that it is filing for preliminary creditor protection, an initial step that could lead to the largest bankruptcy case in the country's history.

The potential demise of Abengoa is an extreme example of a Spanish company whose debt-fueled expansion during the country's boom years has handicapped its ambitions for growth today.

The company is one of the world's top builders of power lines transporting energy across Latin America and a top engineering and construction business, making massive renewable-energy power plants in places from Kansas to the U.K.

The latest round of Abengoa's negotiations with creditors began after Spanish investment firm Gonvarri Corporació n Financiera canceled a plan to inject around €350 million ($372.85 million) into the Seville, Spain-based company, Abengoa said in a regulatory filing on Wednesday.

"The company will continue negotiations with creditors with the goal of reaching an agreement to ensure its financial viability," Abengoa said in the filing. A spokeswoman declined to comment further.

Abengoa shares fell by up to 70% on Wednesday.

The news also hit the shares of Spanish banks, which are among Abengoa's lenders. Banco Santander SA was down more than 3% in early afternoon trading in Madrid. The lender has declined to comment on its exposure to Abengoa. Banco Popular Españ ol SA fell 4.78% and Banco de Sabadell SA fell 3.8%.

Abengoa, whose market value plunged to €300 million on Wednesday, reported gross financial debt of €8.9 billion in the third quarter.

That figure swells to €16.9 billion when including €2.1 billion the company has in what are known as confirming lines—funds it owes to its suppliers—and €5.9 billion of debt the company has in subsidiaries it said could potentially be sold, according to José M. Arroyas, an analyst at Exane BNP Paribas in Madrid.

"Investing now in Abengoa can only be recommended for those with high risk tolerance," Renta 4 Banco analysts in Madrid wrote in a research note.

Abengoa now has up to four months to continue talks with creditors. Under Spanish law, the creditors won't be able to force bankruptcy proceedings meanwhile.

"We hope that some sort of solution can be found to keep the company going," said Elvira Rodrí guez, the chairman of Spain's stock market regulator.

The decision by investment firm Gonvarri to back out of its plan to inject funds into Abengoa is the latest blow to the company, which has been desperately trying to raise funds for several months amid snowballing concerns among investors and analysts about its solvency.

During much of last year, its shares were snapped up by investors who were intrigued by Abengoa executives' pledges to whittle down the debt the company began to amass in Spain's pre-crisis years.

But earlier this year, investors grew wary, concerned about how much cash Abengoa had to manage its debt pile. While the company's debt load was nothing new for investors and analysts who had been monitoring the company for years, moves this summer led some to conclude that Abengoa had less cash on hand than they previously thought.

In May, Abengoa sold €97.6 million of a buffer of its own shares known as treasury stock. In July, it borrowed around €275 million worth of its own stock from its top shareholder.

Abengoa executives said progress on Greece's bailout provided the impetus to sell its treasury stock, rather than an acute need for cash. Abengoa's stock-lending agreement with its top shareholder coincided with the company's decision to buy additional shares in a capital raising by one of its U.S. units. Abengoa executives have said the two events were unrelated.

On Aug. 3, Abengoa announced it would raise €650 million in capital and sell assets to pay down debt and calm concerns about its liquidity.

Instead, the announcement inflamed investors' worries as it came three days after Abengoa executives had said the company didn't need more capital.

Investors and analysts trace Abengoa's current financial trouble to a shift in strategy during Spain's property boom, which started to gain momentum around 2004. The country's banks eased borrowing requirements for companies, which helped trigger an infectious corporate optimism, spurring some Spanish companies to step up expansion abroad.

Historically, the company had built power transmission lines, biofuel plants and desalination infrastructure for clients. During Spain's boom years, though, it began to construct such projects for itself, fueled by cheaper bank loans and a desire to expand.

The company took on piles of debt in anticipation of a growth rate that never materialized.

Earlier this month, Abengoa posted a €194 million net loss for the January-September period, compared with €100 million net profit in the same stretch last year. Sales fell 3.8% to €4.87 billion.

"At this juncture, the investment case rests substantially on the willingness of the banks to give Abengoa new loans," Exane's Mr. Arroyas wrote in a Nov. 16 report after the company reported third-quarter results.

Ana Garcí a and Carlos Ló pez Perea in Madrid contributed to this article.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

 

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(END) Dow Jones Newswires

November 25, 2015 09:05 ET (14:05 GMT)

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