Dalmacijavino harvests the grapes of wrath in Croatia

By bne IntelliNews February 8, 2012

Guy Norton in Zagreb -

La plus ca change, la plus c'est la meme chose. In 2002, the then Croatian finance minister, Slavko Linic, was willing to throw state-owned drinks firm Dalmacijavino to the wolves after years of mismanagement meant it had racked up debts of HRK186m (€24.5m). Fast forward a decade, and a new government featuring Linic once again as finance minister is seemingly prepared to declare the very same company bankrupt - only now Dalmacijavino's debts have passed the HRK1bn mark, the lion's share of which are owed to the state.

Anyone looking for an example of the Balkan state's highly questionable record of keeping failing state enterprises on life support need look no further. To his credit, Linic argued way back in 2002 that the firm was a lost cause, but in the interest of preserving the then six-party coalition government he backed down from sending Dalmacijavino into oblivion in the face of opposition from the administration's then major party, the Croatian Peasants Party (HSS) - the traditional lobbyists for Croatian agricultural interests. In the interim decade, the company's fortunes have gone from bad to worse, racking up further debts and financial losses.

Some six failed privatisation competitions later and Dalmacijavino now once again faces the prospect of bankruptcy after the latest sell-off attempt looks to have turned to dust. At the end of January, Jewish-American businessman Salomon Berkowitz's attempt to buy into the drinks firm was rejected after the country's state asset management agency Audio declared that his firm Traubi International had failed to meet the requisite conditions of a privatisation contract signed late last year with the previous government that lost power in December.

Workers' lot

An uncertain future now beckons for the 500 or so workers who remain at the firm and have not been paid for five months. Traubi International had been the only acceptable bidder in a November tender to buy the firm, agreeing to pay a symbolic HRK1 for an 80% stake, plus agreeing to pay off HRK120m to cover loans to Dalmacijavino from Audio and repay debt to suppliers. To his credit, Berkowitz expressed astonishment that the company's workers had not been paid for months and promised to remedy the situation as soon as possible. However, last week Audio and the government rejected his bid, claiming that Traubi International had not submitted the requisite restructuring plan and financial guarantees.

At a press conference on February 6, Berkowitz hit back at claims that he had negotiated in bad faith and failed to comply with terms of the privatisation agreement, suggesting that his offer to buy Dalmacijavino had been torpedoed by local interests. He also requested a face-to-face meeting with Economy Minister Radimir Cacic to end what he called the game of "administrative ping-pong" that has surrounded Dalmacijavino in recent months. He reiterated that he was still willing to pursue his interest in the firm because he believes it still has a viable future. "We still believe this deal can still happen and we will do everything that is expected from a buyer to make this deal happen," said Berkowitz, adding that the government had the previous week effectively given him just three hours notice that he should submit an unconditional bank guarantee of Hrk120 million. "That simply wasn't possible."

Berkowitz went on to say he regretted that communications with the government negotiators had been so poor and that Traubi International had been left in a state of "legal limbo" with regard to its potential purchase of Dalmacijavino. "This is a bad example for other potential foreign direct investors [in Croatia]. The thing we wouldn't want to be is to be kicked out in such an unprofessional way. Let them [the government] tell the truth to the people. If they don't want us here, let them say we don't want a foreign investor in Dalmacijavino."

Berkowitz said he hoped that the government would respond positively to his request for a face-to-face meeting to discuss Dalmacijavino's future and added that he was prepared to submit a bank guarantee to support his takeover bid, conditional on the authorities indemnifying him against potential losses arising from the discovery of any financial skeletons in Dalmcijavino's closet. With regard to the future prospects of any sale Berkowitz said: "We don't want to withdraw and we never intended to withdraw. I hope, I'm sure the government wants to save jobs... they should give Dalmacijavino a chance, it has good potential."

Last chance saloon

Dalmacijavino can trace its roots back to 1946 when it was established in the southern Croatian city of Split and became a major wine, spirits and juice producer in the former Yugoslavia.

However, since Croatia gained independence in 1992, the company has never recovered from the loss of its former captive markets and back in 2010, as a result of mounting debts, it lost its excise license, which meant it was no longer able to sell alcoholic drinks. Since then, its diminishing financial fortunes have been reliant on a popular, but (internationally at least) unfortunately named, orange-based soda drink called Pipi.

Berkowitz, however, is confident that he can turn the company around, partly based on rebranding Pipi and marketing it as Kosher-compliant drink abroad, as well as using Dalmacijavino to manufacture the carbonated grape-based drink Traubi-Soda on which his company's fortunes are based. He also hopes to regain Dalmacijavino's excise license that would once again allow it to produce and sell wines and spirits with a view to marketing them in both the US and Israel where he enjoys strong business ties.

Berkowitz has said he will retain all the current 500 workers for at least 12 months and invest an initial amount of at least €10m to turn around Dalmacijavino, which in recent months has been racking up losses of at over €1m a month.

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