The Croatian parliament approved an emergency law aimed at protecting the stability of the national economy by offering assistance to systemically important companies that cannot repay their debts on April 6. The law entered into force at midnight on April 6.
Adoption of the law followed a financial crisis at Croatian food and retail giant Agrokor. A chief restructuring officer - Antonio Alvarez III, executive director of restructuring at global consulting firm Alvarez & Marsal - has now been installed at the company but has warned that there is no guarantee new management will save the company.
Croatian companies with liabilities higher than €1bn and with employees more than 5,000 are defined as systematically important firms, according to the new law. The law also allows the government to appoint an restructuring officer to the struggling company at the request of a creditor, Reuters reported.
"The aim of this law is primarily to protect the interests of the Croatian economy, all stakeholders in the situation - workers, employees, suppliers, those who are leaning on suppliers, creditors, the company itself - in a way that would allow it a high quality and sustainable restructuring, getting fresh, new liquidity guarantees to those creditors who are willing in these circumstances provide such liquidity,” said Prime Minister Andrej Plenkovic ahead of the parliament vote, according to a government statement.
Meanwhile, the Zagreb police have launched an investigation into Agrokor, Reuters reported on April 6.
Last week, Most leader and parliament speaker Bozo Petrov said that he had asked the Zagreb state attorney’s office to investigate the company’s Ivica Todoric over alleged irregularities in the group’s financial reports, according to Reuters.
Boris Vujcic, governor of the Croatian Central Bank (HNB), told local daily Vecernji List on April 6 that Agrokor crisis will almost certainly have consequences on GDP, according to Reuters. "We still don't know the details of restructuring process, so we can't calculate what exactly the effect on GDP could be," Vujcic also said.
After the law was approved by the centre-right majority composed of Plenkovic’s Croatian Democratic Union (HDZ) and the Bridge of Independent Lists (Most), Plenkovic held a meeting with Agrokor’s six main creditors, Sberbank, VTB Bank, Erste & Steiermarkische Bank, Raiffeisenbank, Privredna Banka Zagreb and Zagrebacka Banka. The lenders welcomed the adoption of the law, according to Total Croatia.
However, the law, and in particular amendment proposed just before the final vote, created controversies in the Croatian parliament, according to Total Croatia. With the last moment amendment, the new law provides priority in repayment, including bankruptcy, to fresh creditors of the struggling company.
Opposition lawmakers claimed that the new law would favour creditors at the expense of suppliers, according to Reuters.
“The final amendment gave Russian banks absolute priority in settlement of their claims. The amendment transformed Croatia into a colony of Russian financial interests”, Pedja Grbin of the main opposition Social Democratic Party (SDP) said during the parliament session, according to Total Croatia.
“The amendment showed the government itself did not believe the [restructuring] process [at Agrokor] would succeed,” SDP leader Davor Bernardic told the parliament.
The new law opened the way for Croatian citizens to pay for lawsuits and arbitration proceedings, Ivan Vrdoljak, the president of the small but influential liberal-left Croatian People’s Party (HNS), warned.
“Do you know how much Agrokor’s current obligations are? €5bn,” Branko Bacic of the HDZ said in response to the opposition’s accusations.
Sberbank, VTB and Erste Bank together account for most of the €2.5bn loan debt for the Agrokor group at end-September, Standard & Poors noted. In addition, Agrokor owes HRK16bn (€2.2bn) to its suppliers.
Agrokor was downgraded by Moody's Investors Service on March 28. On April 5, Standard & Poor’s has downgraded Croatia’s struggling retail giant Agrokor’s long-term corporate ratings to ‘CC’, one notch above ‘SD’ (Selective Default), with negative outlook.