Croatia passed an emergency law yesterday (6 April) aimed at protecting the economy from big company failures as Agrokor, the country’s largest private firm, seeks to resolve its debt crisis.
The centre-right majority in parliament approved the law, which will be implemented if Agrokor fails to reach a deal with banks and suppliers on a cash injection and restructuring.
Under the law, devised to deal with problems at companies with at least 5,000 employees and debts of €1 billion, the state will be able to appoint an executive to steer a restructuring at the request of a debtor or at creditors’ request with the company’s agreement.
The law envisages a company reaching a restructuring deal within 15 months.
Agrokor is the biggest food producer and retailer in the Balkans with 60,000 employees. It accumulated debts of about 45 billion kuna (€5.8 billion), or six times its equity, as it expanded rapidly, notably in Croatia, Serbia, Slovenia and Bosnia.
Agrokor, whose annual income equals 15% of Croatia’s gross domestic product, struck a deal on Sunday with six lenders led by Russia’s Sberbank and VTB to freeze debt repayments and get an unspecified cash injection.
In line with that, a restructuring expert was appointed to rescue the business. Antonio Alvarez III, of consultants Alvarez&Marsal, said on Tuesday (4 April) there was no guarantee that the company could be saved.
Alvarez said yesterday that his team had met representatives of six banks, including Austria’s Erste Bank and Raiffeisenbank and Italy’s Intesa Sanpaolo and UniCredit, to discuss providing Agrokor with more financial backing.
“A decision depends on approval by boards in each of those institutions and procedures are now on a fast track… The company is considering all available options,” Agrokor said in a statement.
Local food firms that supply Agrokor’s retail chain Konzum, which controls 30% of the local market, are owed 16 billion kuna and they fear demands for payment could be affected by the restructuring.
One of the main problems between the banks and suppliers is factoring of promissory notes which suppliers received from Agrokor for delivered goods and then exchanged for cash, which the banks are seeking to get back from suppliers as they cannot be repaid by Agrokor.
“If there is no deal with banks today, we would support any other solution that leads towards helping suppliers to survive in all this,” said Alen Fontana, chief executive of local dairy Dukat. Suppliers could be forced to stop delivering goods to Agrokor within the next 24 hours, he said.
Opposition lawmakers in parliament criticised the new law, saying it would favour creditors at the expense of small suppliers and could threaten the state budget if the government is forced to guarantee liquidity injections to avert a corporate failure.
The Zagreb police force said in a statement on Thursday that it had launched an enquiry into Agrokor, but declined to provide any details.
Local media reported that the police action came after parliament’s speaker Bozo Petrov said last Friday that he had asked the Zagreb state attorney’s office to investigate Agrokor’s owner, local businessman Ivica Todoric, about alleged irregularities in Agrokor’s financial reports. Agrokor declined to comment.
Croatia’s central bank governor said on Thursday that the Agrokor crisis will hurt the country’s economy this year, but could not yet determine by how much.