Agrokor scandal threatens Croatian government

Agrokor scandal threatens Croatian government
Prime Minister Andrej Plenkovic defends his handling of the Agrokor crisis.
By bne IntelliNews October 27, 2017

The growing scandal surrounding Croatian food and retail giant Agrokor has threatened to bring down the government as the opposition Social Democratic Party (SDP) reportedly prepares to collect signatures for a no-confidence vote. 

The reports — which have not yet been confirmed by the party — came after details of a loan agreement between Agrokor and investment fund Knighthead were leaked to the media. Meanwhile, the investigation into financial irregularities revealed at the troubled group is accelerating, with an arrest warrant issued for its founder Ivica Todoric. 

Agrokor is undergoing restructuring after a debt crisis pushed it to the brink of collapse earlier this year. A successful conclusion of the restructuring process is critical for Croatia where it employs around 40,000 people, as well as a further 20,000 across the Balkans.

As rumours of an impending confidence vote swirled in the local press, Prime Minister Andrej Plenkovic commented on the issue on October 26, accusing the SDP of “recklessness and irresponsibility”. 

“They want to destabilise the restructuring process of Agrokor, the company that has the greatest impact on the entire Croatian economy and the financial system. These are the ones who wanted the biggest Croatian company to go bankrupt, not thinking about jobs, financial stability, the international image of the Republic of Croatia. It is miserable and irresponsible,” Plenkovic said in a video posted on the ruling Croatian Democratic Party’s website. 

He described the situation at Agrokor as the biggest crisis Croatia has faced since the war of the 1990s. 

Plenkovic’s government is under heavy pressure following revelations about the loan agreement signed in June, which according to local media reports gave creditors wide-reaching powers over the restructuring of the company.

In June, Agrokor secured €480mn worth of fresh financing from bondholders led by Knighthead Capital Management and domestic banks. The loan is under a roll-up arrangement and Agrokor is required to repay €1.06bn, including matured debts to its creditors, according to Jutarnji List. The roll-up option allows new creditors to claim superiority to their previous debt to Agrokor.

The daily claimed that according to the agreement, the restructuring plan and the settlement with creditors cannot be made without the approval of the lenders of the new loan and the Croatian government is not allowed to remove extraordinary commissioner Ante Ramljak because this could be considered a violation of the agreement. However, both the government and Ramljak have refuted claims that the extraordinary commissioner cannot be dismissed, according to HRT.

Russia’s Sberbank was also angered by the deal because of the roll-up option since it gave the new lenders priority over its claims against Agrokor. Ramljak told journalists on October 26 that the Russian lender could secure up to €115mn from claims it has filed outside Croatia, Reuters reported. 

Plenkovic, meanwhile, defended his government’s actions on October 26, saying that the law on extraordinary administration — which stipulated Ramljak’s appointment — has saved Croatia from an “economic and financial tsunami”.

However, his government is on somewhat shaky ground. The ruling HDZ and its coalition partner, the Croatian People’s Party (HNS), as well as smaller parties and representatives of national minorities have a slim majority. HDZ struck a coalition agreement with HNS in June, after the coalition with their junior partner the Bridge of Independent Lists (Most) ended in April.

Meanwhile, a criminal investigation is progressing after an audit report recently revealed undisclosed liabilities amounting to HRK3.9bn. 

The Croatian interior ministry announced on October 17 that criminal investigations have been launched against 15 Croatian citizens, all of them connected to Agrokor, for alleged economic crimes. 12 of them — 10 former members of Agrokor’s management or supervisory boards and two Baker Tilly employees — have been detained and questioned. Police also raided Todoric’s house and other premises. 

However, they were unable to locate Todoric or his son, who are understood to have left the country, and have since issued an arrest warrant for the Agrokor founder. 

Todoric, meanwhile, has been communicating via his blog, where he maintains his innocence while accusing Ramljak and government officials of “stealing” his company. 

“I am not running away from responsibility, but as I have said if there is any responsibility, and I am convinced that it isn’t, then it is only mine. However, as a man whose human rights have been violated, with my team of lawyers I am gathering evidence and facts in order to be able to contend with the lies in the lawsuit and defend myself and my associates from political persecution, the aim of which is to cover the fact that politics has hijacked private property and is today [ruling] with anarchy and crime,” he wrote in a recent post.

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