Major Cuts Coming to Agrokor

By , 12 Aug 2017, 14:44 PM Business
Major Cuts Coming to Agrokor Source: Agrokor

Share this:

In order to survive, the largest Croatian privately-owned group will have to undergo substantial restructuring.

Agrokor's extraordinary administration has published a report on the economic and financial situation in the group, a kind of a business report for the first six months of this year. For the first time, the data were released from which it is possible to reconstruct what Agrokor's fate will be, as well as of its creditors and suppliers. While conclusions are just approximate at this point, they do give us a picture of what we can expect in the future, reports Glas Grada on 12 August 2017.

Three key findings can be drawn on the basis of the report.

First, since EBITDA (earnings before interest, taxes, depreciation and amortization) of the retail and wholesale parts of the group were -234 million kunas, while the key companies in the food sector earned 521 million kunas (+13.1%) and in the agriculture sector 141 million kunas (+10.4%), it is evident that the central part of the business restructuring of Agrokor will involve its retail and wholesale trade business.

It can be assumed that decisions regarding the restructuring of the main retail subsidiaries, particularly Konzum, will have to be even more aggressive than the so-far announced closure of a hundred stores and an attempt to lower unrealistically costly sale and leaseback agreements for premises in which the shops are located.

It is fairly clear that it is unlikely that Konzum can survive in this form and with this number of retail store formats. It is hard to say whether splitting up, selling in parts, or closing down a large number of stores is more likely. Although daily turnover in Konzum has recently managed to exceed the results from the last year, without radical changes that will not be enough to stop the negative impact of the retail sector on the rest of Agrokor, which is not acceptable given the total level of debt.

Secondly, if Agrokor’s possible annual earnings (EBITDA) are estimated on the basis of data from the first six months, then it can realistically be expected that EBITDA could reach no more than 250 million euros by the end of the year. If that is the starting point, the next question is how will Agrokor return about 5.5 billion euros of its debt, which carries around 300 million euros annually in interest rate payments.

It is quite obvious that only creditors with super-priority claims will be able to get their money back, while others will have to accept substantial write-offs. For example, if 3.5 billion euros of debts cannot be repaid in full, then it can be estimated that all those without the super-priority status will probably have to accept write-offs up to between 60 and 80 percent. Until now, unofficial estimates spoke about write-offs in the range of about 30 percent.

This is particularly bad news for Sberbank from Russia, which is one of the largest creditors and which provided a total of 1.3 billion euros loans to Agrokor. As is well known, the Russians did not agree to provide new loans in return for receiving priority for their old loans, so now they have to resort to a legal battle as the last hope of getting back at least part of their money provided to the group.

This brings us to the third major conclusion derived from the report; for Agrokor, its creditors and suppliers, a period of legal uncertainty has arrived. This will be a battle of all against all. Therefore, it is not surprising that the administration had to devote a whole chapter of its report to litigation and enforcement proceedings against Agrokor and affiliated companies. At this moment, it seems that the key battle will involve legal action initiated by Sberbank in Slovenia, at the Commercial Court in Zagreb, and in the three arbitration proceedings in London.

To a significant extent, this will not only be a battle against Agrokor and other creditors, but also against the Republic of Croatia and its government, which adopted the “Lex Agrokor” and named the extraordinary commissioner to lead to the company, and in that way took over responsibility for the whole group.

Translated from Glas Grada.

From Croatia with Madness

Croatia Traffic Info

  • Traffic is of medium intensity on the A1 Zagreb-Split-Ploče, A2 Zagreb-Macelj, A3 Bregana-Lipovac, A6 Rijeka-Zagreb motorways and on the motorways in Istria. There are no longer delays at Lučko toll station. Occasional hold-ups are possible along the DC8 Adriatic road on acces roads to tourist centres, on the DC1 state road, in ferry ports and at border crossings. Sections of the roads closed due to roadworks: -the DC29 from Novi Golubovec (DC29, DC35) -the DC502 Smilčić-Pridraga state road -ŽC5042 Višnjan-Tićan. Traffic is regulated by traffic signals/one road lane is free only: -on the DC1 state road in Knin, on the section Sučević-Otrić in Otrić -on the state road DC2 in Vukovar, (Kudeljarska and Priljevo street) -on the state road DC66 Pula- Raša bridge -on the state road DC206 Valentinovo-Petrovsko. With the sunny and dry weather, more and more cyclists and motorists are on the roads. Other vehicles (such as cars or trucks) should look carefully for bicyclists before turning left or right, merging into bicycle lanes and opening doors next to moving traffic. Check your mirrors and be aware of blind spots before turning. While at a stop sign or red light, make a complete stop in order to let bikers pass, and check for unseen riders. Respect the right of way of bicyclists because they are entitled to share the road with you. Cyclists are not immune to traffic violations: pay attention to red lights and practice arm signaling!
    Read more
  • Due to heavy traffic during the tourist season longer wait times are possible on most border crossings with Slovenia, Bosnia and Herzegovina, Serbia and Montenegro.
    Read more
  • All ferries and catamarans are operating according to schedule
    Read more

Interview of the week

Photo galleries and videos