Croatian PM attempts damage control over Agrokor

Croatian PM attempts damage control over Agrokor
By Akin Nazli in Belgrade March 16, 2017

The Croatian government is carefully monitoring Agrokor’s financial situation to avoid any negative repercussions for macroeconomic stability and the financial system, Prime Minister Andrej Plenkovic said on March 15.

There has been growing speculation about the financial situation at Agrokor, and the food and retail giant’s ability to pay its debts. Both Moody's and Standard & Poor’s have downgraded their ratings on Agrokor in recent weeks. 

Plenkovic commented on the issue on March 15, in an apparent attempt to allay fears about the situation at the country’s largest employer. The Croatian government urges local businesspeople and representatives of international companies to “calm down” at their regular meetings, Plenkovic said on March 15. 

The responsibility for Agrokor primarily lies with its owner, and Plenkovic said he expected that the management would bring “wise solutions” to the company’s financial problems.

On the same day, Finance Minister Zdravko Maric dismissed speculation about Agrokor’s HRK6bn worth of tax debt, EBLnews reported.

Meanwhile, the leader of the ruling Croatian Democratic Union’s (HDZ) junior coalition partner Most, Bozo Petrov, told a session of the parliament that the government has given a chance to Agrokor’s owner Ivica Todoric and it will defend the Croatian economy if necessary, said EBLnews.

Also on March 15, Agrokor said that its investors are actively involved in the process of stabilising its business and it will make timely public disclosures on further developments, according to Reuters.

Agrokor employs about 60,000 people across the region and is the largest private company in Croatia with 40,000 employees. Its core business includes production and distribution of food and drinks, as well as retail. 

Its HRK50bn annual turnover is equivalent to around 16% of Croatia’s GDP. Given the size of its operations and the number of people it employs, Agrokor is of strategic importance to the Croatian economy.

The Croatian government said in a March 14 statement that government and parliament representatives held a meeting with Agrokor management. HDZ and Most are aware of the importance of Agrokor for Croatian economy, the statement said.

This was the latest meeting between top government officials and government and Agrokor representatives, who are also reported by Total Croatia News to have held a secret late-night meeting at government headquarters on March 5. 

Since mid-January, the yield on Agrokor's bonds maturing in 2020 has jumped from around 7.5% to around 25%. A report by Moody’s on February 15 raised questions about the company’s ability to repay its maturing loans. Moody’s wrote that while it thought Agrokor’s liquidity was sufficient to address 2017 maturities, debt remained high. Maric sought to dispel concerns on the same day. 

However, on February 24, Moody's announced that it had downgraded Agrokor's rating outlook from stable to negative and affirmed the company at B3. On March 3, Standard & Poor’s announced that it had lowered Agrokor’s long-term corporate credit rating to 'B-' from 'B' with a negative outlook on rising refinancing risks.

Agrokor needs to refinance a €535mn payment-in-kind (PIK) subordinated loan by early March 2018 to avoid cross acceleration with €840mn of senior bank debt, S&P said. Agrokor obtained the PIK loan to finance the acquisition of a €544mn majority stake in Slovenian retailer Mercator in June 2014.

Agrokor has subsidiaries in Bosnia & Herzegovina, Slovenia, Serbia and Hungary. In September 2015, Agrokor increased its stake in Merkator, which is also present in Croatia, Serbia, Montenegro and Bosnia, to 80.75%.

Russian financial institutions Sberbank and VTB Bank had provided 52% of the restricted group debt and 87% of its bank debt as of September 2016.

On March 15, Sberbank Croatia said in response to Hina’s inquiry that it was in direct communication with Agrokor but it can not comment on relations with a client, according to EBLnews.