Shares in Risanamento, the heavily indebted Italian property developer, fell 30 per cent on Tuesday as the company battled to avoid filing for bankruptcy and its chief executive resigned.

Risanamento is struggling to manage €2.8bn ($4bn) of net debt and is in negotiations to reach an agreement with a group of Italian banks on new borrowing terms ahead of a court hearing next week, which could see the property developer forced to declare bankruptcy.

Such an outcome would make Risanamento the biggest Italian corporate casualty of the global credit crisis. The developer, controlled by the property tycoon Luigi Zunino, has borrowed heavily to develop housing and office complex projects in the Milan area but has run into difficulties because of the credit squeeze and a deepening recession in the Italian economy.

The company said on Tuesday that Mr Zunino would step down as chairman and chief executive, a move that it said would make the debt negotiations with the banks easier. It also said it had raised €18m from asset sales and had entered into agreements for another €9m of disposals.

Risanamento has 2.5m square metres of office and housing developments, most in Milan and its outskirts, and according to its website they are valued at €5bn. The company mainly builds new suburbs and gated communities. It hired British architect Lord Foster to design apartments for a huge development in Santa Giulia, a suburb of Milan, which it has been unable to complete.

A court in Milan has set a hearing for July 29 to enable Risanamento to respond to a prosecutor’s request that it be declared bankrupt. The company said on Tuesday it felt confident that it could avoid such a declaration. However, bankers and analysts in Milan said any agreement with its creditors before then looked unlikely, though not impossible. They said its chances of avoiding bankruptcy could be hampered by the banks’ unwillingness to take ownership of huge property developments that they had little prospect of selling in the economic climate. But the belief that the banks would be reluctant to write down the value of such a huge asset on their balance sheets may work in Risanamento’s favour, they said, acting as an incentive for all sides to reach an agreement.

Italy did not have a property bubble such as was experienced by Spain and Ireland in the past decade. According to analysts, Risanamento’s problems were starting to emerge before the credit crisis, because its huge borrowings to develop projects that were not producing revenues had left it overstretched.

The situation was made worse by the credit squeeze and a consequent slump in the Italian property market. The Italian economy is likely to shrink by about 5 per cent this year, according to official forecasts.

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