March 27, 2017 / 12:29 PM / 3 years ago

Troubled Croatian group Agrokor vows to meet suppliers' payment deadlines

ZAGREB, March 27 (Reuters) - Croatia’s heavily indebted foods and retail group Agrokor, the country’s largest privately owned firm, met on Monday with its local suppliers, which according to media reports are owed 16 billion kuna ($2.34 billion), and said it would meet all payment deadlines.

The biggest food producer and retailer in the Balkans, with revenue equivalent to 15 percent of Croatia’s gross domestic product, Agrokor is under pressure to restructure its debts , which amounted to 45 billion kuna ($6.58 billion) in its last results report, for the third quarter of 2016.

On Friday Deputy Prime Minister Martina Dalic, who is also the Economy Minister, said the government was working on drawing up a new law aimed at shielding the economy and the financial system from the risks of a major company failure.

“Our management will fully commit to respect payment deadlines towards suppliers, as agreed in the contracts. As far as the restructuring process is concerned, we will do everything to protect their exposure towards Agrokor,” the company said in a statement on Monday after the meeting with around 30 local companies.

Agrokor had revenues of 50 billion kuna in 2015 and made a profit before tax in the first nine months of last year of 540.3 million kuna. Total shareholder funds amounted to 7.5 billion kuna at the end of September, implying a debt ratio of six times its equity.

“The president of the concern (Ivica Todoric) presented to the suppliers the plans for continuation of the business,” the statement said, without giving details. Earlier this month Agrokor said it was working on stabilising its business.

Dalic said last week the government’s new law would provide a framework for stabilising an indebted company’s operations during a restructuring but denied the legislation was being drawn up because of Agrokor’s problems.

According to media reports, the law could be ready as early as this week although the government would not confirm it. “We’re certainly working on it,” a spokeswoman said.

Agrokor has around 60,000 employees and, besides Croatia, is mostly active in Slovenia, Bosnia and Serbia. One of its major creditors is Russia’s largest lender Sberbank which said it was ready to offer help, but did not provide any details.

Agrokor’s president Ivica Todoric founded the company 41 years ago, when it was a horticultural business, producing flowers and seedlings, but more recently piled up debts to support further expansion, analysts say.

“A restructuring is unavoidable, while the state should step in to smooth (the process) out if necessary,” said an economic analyst Damir Novotny.

He said the restructuring could entail the sale of non-core assets, such as the company’s interests in tourism, construction and energy production, as well as the refinancing of debts, and is also likely to involve some job losses.

“An expected way forward would be for creditors to exchange debt for equity and then, after stabilising the business with a new management, to sell it to recover their money. The problem is we don’t know what really the owner thinks and wants,” said a foreign-based fixed-income analyst who asked not to be named.

Agrokor is not listed, but some of the companies it controls are listed on the Zagreb bourse and have been mostly losing value in the last two weeks. Agrokor has also tapped the foreign markets with a series of bond issues whose yields soared to around 30 percent from some 8 percent in the last three months.

“We don’t even know at the moment who’s involved in making decisions about Agrokor’s future. There is much confusing and unconfirmed information whirling around. Apparently, it’s not just Todoric who’s deciding now,” Novotny said. (1 euro = 7.4365 kuna) (Editing by Greg Mahlich)

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