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News 20 Mar 17

Croatia's Agrokor Must ‘Resolve Complex Issues at Once’

The troubled biggest private company in Croatia, Agrokor, needs to resolve its multiple financial woes all at once, the head researcher at global fixed income specialist Debtwire told BIRN.

Sven Milekic
Agrokor's logo on company headquarters in Zagreb. Photo: BETAPHOTO/HINA/Lana SLIVAR DOMINIC/MO

Croatia's biggest private company, Agrokor, which is experiencing serious financial problems, needs to address its complex problems “all at once”, the head researcher of the global fixed income specialist Debtwire told BIRN.

Debtwire published its latest report on Agrokor on Friday. It published its previous report on the company in February.

Nick Smith-Saville, head of the European research at Debtwire, told BIRN that Agrokor’s problems are complex.

He explained that the maturity of 485 million euros of "payment in kind", PIK, loans, due in June 2018 – a problem highlighted by many experts – could cause serious problems for company’s capital structure. However, he emphasised that “it is only one issue”.

Another is Agrokor’s “draining the liquidity out of the system”, which he called more of a short-term problem.

“You have several interconnected problems and unless you deal with them all at once you could worsen one or cause another,” he said.

Media reports have said that some of the company's biggest creditors and suppliers are mulling taking over parts of management or ownership of the group – among them the biggest creditor, Russian state-owned Sberbank, which reportedly loaned the company another 300 million euros recently to cover short-term financial obligations.

However, Maxim Poletaev, vice-chair of Sberbank’s management board, told Bloomberg on Saturday that its “plan is not to take over” Agrokor but to take part in the restructuring of the company, by selling off parts “which aren’t important for company’s core business”.

Although the sale of subsidiaries is “technically possible”, Smith-Saville sees a problem here in Agrokor being “highly levered”.

He said that the “first question I would have regarding the feasibility" of such sales is whether Agrokor "as a forced seller … can get a high enough multiple [from potential buyers] to truly make it worthwhile”.

Secondly, Smith-Saville said the group needed to “de-consolidate” its intra-group businesses before it “could really sell the subsidiaries in a way that actually makes sense for the Group as a whole”.

He emphasised that Agrokor Group owes significant sums to two of its own key subsidiaries, the frozen food company Ledo and water and the beverages company Jamnica – totalling around 325 million euros, according to company data.

Furthermore, Smith-Saville said one of the key issues regarding biggest Agrokor’s suppliers – the big Croatian food companies – is their “lost confidence in the company”, which needs to be restored by any means possible.

Media reports say biggest Akrokor’s suppliers are due to meet Croatian Economy Minister Martina Dalic on Monday, hoping to potentially transform Agrokor's debts to them into partial ownership of some of the subsidiaries.

The company's role in the economy of Croatia is massive, with revenues of 6.5 billion euros in 2015 – almost 16 per cent of Croatia's total GDP – and around 40,000 employees.

Agrokor employs another 20,000 people in neighbouring Bosnia and Serbia while it is believed that suppliers and companies for the Slovenian retailer Mercator – which it bought in 2014 – employ around 70,000 people in Slovenia as well.

The company's main problem is its accumulated debts. Borrowings at the end of 2016 stood at 3.4 billion euros while its total debt was estimated at some 6 billion euros, almost six or even seven times higher than its estimated total capital, which is put at slightly over 1 billion euros.

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