Moody's Investors Service has downgraded the rating outlook of Croatia-based food retailer and manufacturer Agrokor from stable to negative and affirmed the company at B3, the rating agency announced on February 24.

Given the size of its operations and the number of people it employs, Agrokor is of strategic importance to the Croatian economy. Moody’s latest action follows concerns about the company’s ability to repay its debts, which Croatian Finance Minister Zdravko Maric sought to dispel on February 15. 

The outlook downgrade reflects Moody's current view that there are an increasing number of risks and uncertainties weighing on Agrokor's credit quality as evidenced by a deterioration in its access to credit markets as well as high exposure to a small number of banks, with Russian financial institutions Sberbank and VTB Bank providing 52% of the restricted group debt and 87% of its bank debt as of September 2016, according to the statement from the rating agency.

"Our decision to change Agrokor's outlook to negative reflects the uncertainties weighing on its credit profile, which is constrained by a more limited access to credit markets and a need to stabilise operating performance and leverage at a time when the company's shareholder Adria is due to address the repayment of its PIK toggle loans,” said Moody’s analyst Vincent Gusdorf.

An earlier report by Moody’s raised questions about the company’s ability to pay its maturing loans. Moody’s wrote that while it thought Agrokor’s liquidity was sufficient to address 2017 maturities, debt remains high. 

However, Maric responded by telling local media that Agrokor was still a good company and he did not expect its situation to deteriorate. 

Agrokor has total loan liabilities of €3.4bn, including €1.3bn to Sberbank and VTB Bank, according to media reports.

The company 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.

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