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.
