Croatian governor insists Agrokor will survive but issues warning
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Croatian governor insists Agrokor will survive but issues warning

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Crisis-hit Croatian conglomerate Agrokor will not go bust, the country’s central bank governor insisted in an interview with GlobalMarkets as he said the debacle highlighted the risks of firms building up bad balance sheets

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The high profile liquidity crisis at Agrokor, Croatia’s largest company and southeast Europe’s second largest retail corporation, will not result in its failure, the governor of the central bank insisted in an exclusive interview with GlobalMarkets. Boris Vujcic said the liquidity crisis, which has seen the company freeze payments to all existing creditors for 15 months, would have a negative impact of around 0.3%-0.4% on Croatia’s GDP growth for 2017 which he revised down to 2.8% from 2.9% last year.

However, he refused to be drawn on concerns that Agrokor’s crisis might have an adverse impact on the economies of its operating companies. Agrokor employs 60,000 people in Croatia, Slovenia, Serbia, Bosnia-Herzegovina and Hungary and its revenues account for 15% of Croatia’s GDP.

He said the near collapse of the food and retail conglomerate was a warning to companies not to over-extend their balance sheets. “The company will not fail,” he said. “It is a company with very valuable assets but a bad balance sheet. It is a very good warning.”

His comments came as one bondholders told GlobalMarkets that a committee of creditors were working on a new funding scheme.

Concerns about Agrokor’s debt stock were raised when Agrokor failed to secure commitments to increase a bank loan in January. This caused a “supplier run on the company,” according to a bondholder who spoke to GlobalMarkets.

Agrokor is a highly leveraged company which in 2014 acquired Serbian retail chain Mercator to form one of the largest retailers in central and eastern Europe outside of Russia.

Agrokor overpaid, and overleveraged itself to acquire this stake, according to analysts, which they said was the root of the problem. Agrokor’s net leverage on a fully consolidated basis was 5.9 times as at the third quarter of 2016.

In a bid to understand exactly how much debt is outstanding, the company — now under the control of the government — and all of its subsidiaries have asked creditors to report all their claims within the active timeframe of the extraordinary administration which lasts until June 9.

Only after this point will the full extent of the company’s indebtedness become clear. In addition, it has €890m of Eurobonds and loans totalling €1.74bn as of May 10 outstanding.

LIQUIDITY INJECTION

Agrokor is now in talks with creditors to secure a new liquidity injection which Vujcic said was the “final one.” Talks started yesterday and the “final number” is still being calculated.

According to Aleksej Gren, an analyst at Exotix Partners, the government will want to have order restored quickly. “It is a political move” he said. “The minister of finance was employed there and with local elections coming up in Zagreb on May 21, in order to keep control politically, the government is going to have the Agrokor situation under control.”

It is unclear who will provide the financing as Sberbank, the company’s largest creditor, is already owed €1.1bn by the company.

According to Gren, “Sberbank is looking to sell on its loans but there seems to be a substantial difference between the asking price and what people are willing to pay.

Additional funding will likely come from the bondholders, or local banks,” he added. “I don’t think Sberbank will give them any more money now.”

The bondholder said that there was a growing likelihood that a committee of suppliers, bondholders and lenders who were closely working on a solution would come up with the required funding.

For his part, the bondholder was very confident in the actions taken by the government. He did not believe he would have to take a haircut on his obligations. The bonds were trading around 40 on Wednesday. However, a person with knowledge of the matter said it looked like there “had to be a haircut”.

The situation has also taken its toll on Croatia’s ruling political party. Last week finance minister Zdravko Maric survived a no confidence vote. Before joining the government in 2016 Maric was executive director of strategy and capital at Agrokor for four years.

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