Guy Norton in Zagreb -

It’s been a long time in the offing, but after a near six-year interregnum the Croatian equity market is finally set to witness an initial public offering (IPO) this week.

November 25 will see the start of a three-day subscription period for the sale of shares in agricultural company Granolio. After an investor presentation in the Croatian capital Zagreb late last week, reportedly attended by 50 investors from local equity and pension fund firms according to local media, lead managers Privredna Banka Zagreb and Erste Bank are set to offer institutional buyers the chance to pick up shares in an offer range of HRK134-166 per share, meaning that Granolio is looking to reap between HRK90mn and HRK131mn (€11.7mn-17.0mn) from the sale of a maximum number of 789,157 shares to be sold.

Given that the minimum subscription level in the IPO involves the purchase of 5,800 shares for a total of commitment of at least €100,000, the offer is clearly targeted at professional investors. But it is hoped that the all-too-rare IPO will help to shine a welcome spotlight on the Zagreb Stock Exchange (ZSE), whose financial fortunes have been in the doldrums since the onset of a six-year recession in Croatia, which has seen gross domestic product (GDP) shrink by a cumulative level of around 13% since the start of 2009. The latest forecasts from the Croatian Banking Association suggest that there’s no end to the country’s economic downturn in sight, with the consensus forecast of six of the leading bank economists suggesting that the Croatian economy will shrink by at least 0.2% in 2015 after a probable 0.5% fall this year.

It remains to be seen, however, whether any renaissance in IPO activity will have any meaningful influence on the wider fortunes of the Croatian equity market. In October 2007, the Crobex-25, the headline index of large cap stocks on the ZSE, hit an all-time high of around 5,400 points. But with the onset of the global financial crisis and the associated economic slowdown, by March 2009 the index had crashed to 1,300 points. By the first half of 2011, the Crobex-25 had staged a mini-recovery, reaching 2,200 points, but given the continuation in the recessionary conditions in Croatia in the last three years it has since traded in a range around the 1,800 mark ahead of the Granolio IPO.

Nevertheless, there’s some nascent optimism among local investors that despite the less-than-rosy economic outlook for Croatia, there may be better days ahead for the country’s stockmarket. As the head of one Zagreb-based brokerage told bne: “Average daily turnover on the equity market here may only be around HRK10mn at the moment, but that’s still double the HRK5mn levels we saw a year ago.” He added that while domestic retail investor interest in the equity markets in Croatia was still moribund, dedicated emerging market fund investors have been more active buyers of Croatian equities in the past 12 months. 

Although there are presently no firm candidates to follow Granolio’s into the IPO market in Croatia, there has been speculation that a number of state-owned entities such as port operator Luka Rijeka and electricity generator HEP could look to issue shares next year, while private sector drugs company JGL has also been mooted as a potential share issuer, given its need to refinance an outstanding bond issue which matures in 2015.    

Flour King

The upcoming share sale will see leading stakeholder Hrvoje Filipovic, who controls over 96% of Granolio’s equity, retain a majority interest after the IPO, but the new issue will offer potential investors a stake of 37-40%, which will ensure that the stock enjoys a relatively decent freefloat level on the ZSE when it is eventually listed on the bourse at the start of 2015. As a result of the planned IPO, Granolio’s net equity capital will be boosted from HRK73mn to a minimum of HRK163mn and a maximum of HRK204mn.

Filipovic, popularly dubbed the ‘King of flour’ in the local press, has overseen the growth of Granolio since its foundation in 1996 into the leading flour company in Croatia through a series of acquisitions that has led to the firm becoming the country’s undisputed market leader with a share of around 44% of the wheat flour market, dominated by its Farina and Mlin Kopanica brands.  

The decision to IPO Granolio is viewed as marking a departure from its previous debt-driven acquisition strategy, which has seen it accrue a gross debt burden of around HRK588mn. The company’s latest purchase comprised the acquisition in April of the flour milling operations of Pik Vinkovci and Pik Belje, two agribusinesses controlled by Croatia’s leading private sector conglomerate Agrokor, controlled by Croatian tycoon Ivica Todoric. That deal is reported to have been supported by a HRK150mn bridging loan that will be largely repaid with the proceeds of the IPO.

In addition to its core flour milling business, Granolio also operates in the dairy, meat and vegetable sectors through its ownership of 1,200 hectares of arable land, various livestock facilities and 6,000 square metres of greenhouse facilities. Additionally, it is a part owner of bakery operator Clara and overall it is reported to a key supplier and business partner of the Agrokor group, which gives it valuable access to end-consumers through Agrokor’s Konzum supermarket chain, the biggest retail outfit in Croatia.