Salvaging Croatia’s Biggest Private Company Reveals History Of Ingrained Corrupt Practices


Maxim Ppletaiv of Russia’s
Sberbank in Zagreb
Photo: Screenshot

Corruption is the abuse of high-level power that benefits the few at the expense of the many, and when corruption occurs on a grand scale it causes serious and widespread harm to individuals and society. The terrifying thought is that corruption on a grand scale often goes unpunished, often gets lost in an uneasy but nevertheless “accepted” as a reality of nebulous political pursuits. Corruption concerns countless number of victims as its effects seep down to impoverished and/or jeopardised livelihoods of ordinary people. Whether the Croatian government’s relatively recent take-over of administration of the country’s troubled largest employer – Agrokor – will eventually reveal cover-ups of corruption on a grand scale through decades, involving perhaps some political elites of the day, is anyone’s guess at this stage but inklings of that nature have certainly got tongues wagging on city squares and town streets.


Past days have seen Russian Sberbank (largest Agrokor creditor) deputy president Maxim Poletaiv visit Croatia for meetings regarding saving Agrokor from bankruptcy. A rather telling fact that reeks of dishonesty and most likely corruption in and around Agrokor is embedded in Poletaiv’s revelation that he was being lied to for a long time, by the Agrokor’s head honcho’s (Ivica Todoric) family through presentations of incomplete accounts balances, which has led to Sberbank’s loss of trust in Agrokor.

And so, this week, the Croatian government has entered talks to save Agrokor (an employer of some 60,000 people), Croatia‘s biggest private company and employer, from bankruptcy.

Agrokor’s biggest creditor, Russian bank Sberbank, wants the Croatian government to take over the company’s loan obligations before it considers further financing of the troubled company. It goes without saying that having lost trust in Agrokor, Sberbank will seek that trust in the company (now administered by the government) be restored as trust is undoubtedly the foundation upon which Sberbank’s (or anybody’s) further support will depend.


But one’s mind does boggle – why have we not seen any action yet from the government seeking to sue and/or sanction otherwise Agrokor’s head honcho Ivica Todoric for presenting incomplete (even maybe doctored) accounts to the major creditor in the past? The case reeks of corrupt and/or fraudulent behaviour that is manufacturing likely victims (possible massive job loses) that will shake Croatia to the core. It has become evident that Agrokor’s fiscal documentation had been misrepresented with view to deceive and that spells out falsification that any government has the duty to swiftly act upon. So why is Croatia’s government not dealing with this yet? What is it waiting for?


Sberbank’s deputy president, Maxim Poletaev, said after meeting Croatia’s Prime Minister Andrej Plenkovic that future loans to Agrokor will depend “on the level of cooperation” of the government. In other words, genuine and transparent cooperation – the elements of trust – are the ingredients that have so far been lacking in Sberbank’s dealings with Agrokor and if the Croatian government demonstrate dedication to those elements of trust this may save Agrokor from bankruptcy


An optimistic sign emerged as Poletaev said this week in Zagreb: “We had a very straightforward meeting, We talked about many issues and I think we should find a solution.”

Sberbank has said it will not provide new financing for Agrokor until an agreement is reached with the government, which has since April 2017 via extraordinary measures in order to take over the company’s administration been trying to prevent the collapse of the company and to oversee a debt restructuring.


Indeed, Sberbank’s Executive Director Herman Gref (former minister of economics and trade – Russia) has in recent days criticised Croatia’s hastlily whipped-up law “Lex Agrokor”, which enabled the government’s take-over of the company’s administration and sought that the Croatian state takes over the company’s debts, since it took over its administration!


Agrokor has accumulated an estimated $6.5 billion (5.8 billion euros) in debt, or six times its equity, while rapidly expanding its operations. It owes some 1.1 billion euros ($1.2 billion) directly to Sberbank.



The company needs new loans to pay its suppliers. If they stop delivering goods, the company, which has stores in several neighbouring countries, would have no choice but declare bankruptcy.

The Croatian prime minister sounded an optimistic note.

“We are in talks and new financing will come, probably under better conditions,” Andrej Plenkovic said.


Agrokor, under government administration, expects to complete talks with creditors on a new loan soon, the company’s crisis manager special Commissioner, Agrokor crisis manager, Ante Ramljak said on Monday.


The company received an initial cash injection worth 80 million euros (US$89.34 million) in mid-April to keep the business running. A new injection is expected to be worth up to 350 million euros.

“We’re at the end of talks on a new loan for Agrokor. You can soon expect to be given a concrete figure and names of the creditors which include both local and foreign banks,” Ante Ramljak told reporters.


“All the creditors are offered a roll-up option. It means that for each kuna offered as a new loan the creditors will be granted a senior status for each kuna or less from previous funding,” Ramljak said after talks with Russia’s Sberbank.


To draw a line under Agrokor affair, which has caused a very jittery inflation of the Croatian political crisis, one cannot but fret for Croatian national interests when a Russian bank (Sberbank in this case) (or any other foreign body for that matter) controls important aspects in solving the crisis. Will Croatian leadership be placed in the position of making compromises or allowances to Russian interests is a question that must be asked? If the answer is yes, then are we most likely looking at politically and procedurally elaborate and costly cover-ups of grand corruption that has occurred via Agrokor’s channels throughout the past years? As anticipated, much ugliness has yet to be revealed in the Agrokor saga and the grovernment’s intervention – regretfully. Ina Vukic


Croatia: When Business Mixed With Politics

Croatian Prime Minister Andrej Plenkovic (L)
Extraordinary Commissioner for Agrokor, Ante Ramljak (R)

When Croatia’s government recently took over the administration of its largest firm – Agrokor – that employs some 60,000 people it also took over the solving of the company’s six billion dollars in debt. A possible collapse or bankruptcy could bring the new government that’s at the moment barely holding onto life down with it – unless a miracle happens in a way of new and substantial investments that would create significant number of jobs or consolidate those in jeopardy.

Agrokor – which began as a flower-growing operation in a single greenhouse in former Yugoslavia in the 1970s – underwent an expansion drive over the past decade that saw it run up debts to creditors and suppliers of 50 billion kuna (about 6 billion euros).

Moody’s is quite upbeat:”In the short run we don’t anticipate a complete suspension of business activities, given the importance of Agrokor’s domestic supermarket network and other activities, as well as the standstill agreement with creditors,” it said in a recent report.

But an earlier Moody’s forecast was for Agrokor’s adjusted (gross) debt to EBITDA Earnings Before Interest Taxes, Depreciation, Amortisation) to hit 6x at the end of 2017, or 6.8x including PIKs (payments in kind, see below).

Even in the liquid retail sector and immature markets such as Croatia, this debt-to-EBITDA ratio is dangerously high, placing Agrokor’s bonds in ‘junk’ status.

Furthermore, this still rather dire scenario also assumes that Agrokor will be able to stem the erosion of its EBITDA, which fell by 9.6 percent to 3.02 billion kunas (400 million euros) in the first nine months of 2016.

Standard&Poor’s rated the company ‘CC’ in March of this year, one notch above ‘Selective Default.’ If the company is unable to meet payments on bonds that are imminent – the next is August 1 – it will officially default.

Agrokor has three major bond issues outstanding, with a total face value of 925 million euros: a 300 million euro bond due in 2019 and two notes that mature in 2020, one for 325 million euros and the other for 300 million euros.Bondholders reportedly include T Rowe Price and Axa.

The collapse in Agrokor’s bonds means they now yield more than about 20 percent across the capital structure.

This is in fact a decent return for junk bond investors, especially if one takes into account this is a company that has been seen as too big to fail and has been historically so politically well-connected.

The company’s crisis is a “typical combination of fast expansion, overinvestment, low profitability and high-cost borrowing, which resulted in not enough cash flow to service its credit obligations,” Financial consultant Andrej Grubisic told Politico.

“It has become an example of the unclear links between business and politics in the Balkans,” Mus says.


If the agreement with the banks collapses and the government steps in to provide the 300 million euros in liquidity needed, it would widen the government deficit by around 0.6 percentage points to an estimated 2.8 percent of GDP, from 2.2 percent in the current forecast.

Such support would also have to be in line with EU state aid rules and it is not clear what this might entail.

Meanwhile, trading at about a third of their face value, the company’s euro-denominated notes are reportedly an “interesting” proposition for speculators.

Russian investors are reportedly eagerly looking for higher returns in Agrokor’s distressed bonds. Sanctions imposed by the US and EU have stopped some of the biggest companies from issuing new debt since 2014, leading a lack of supply. “Agrokor is the new game in town “for Russian investors, Aleksej Gren, a fixed-income analyst at Exotix in London, told the Bloomberg news agency recently.

Prime Minister Andrej Plenkovic and finance minister Goran Maric both probably know the old-style comfy alliance of business and politics in Croatia is dieing out. But shining light into the dark corners of this opaque world may reveal even more unpalatable truths for these torch-carriers of the brave ‘new Croatia.’

Agrokor and all the companies in the Group have published last weekon their websites an invitation to creditors to report their claims, as well as the accompanying procedure and documents according to Law for the Extraordinary Administration for Companies with Systemic Importance for the Republic of Croatia. The creditors are invited to report their claims to the Extraordinary Trustee within 60 days since the Extraordinary Administration procedure over Agrokor was activated. The timeframe for claim reporting started on 10 April 2017 and lasts until 9 June 2017.


Agrokor this week was unable to pay its existing loan interest dues and it is abundantly clear that without a sizeable new loan the company will crumble. Or perhaps be bought by new investors and saved?

In the wake of last week’s political crisis, while it achieved the success of electing a new parliament Speaker – Gordan Jandrokovic – the current political surrounds in Croatia are charged with speculations as to whether the government will be able to form a governing majority in parliament. If not then snap elections are inevitable for Autumn or even earlier. Ina Vukic



Averting Yet Another Collapse Of Croatian Government

Croatian Prime Minister
Andrej Plenkovic
Photo: Damjen Tadic/ Hanza media

When upon my return from Croatia a few weeks ago I wrote about my observations on the state of the country one thing that rattled me a great deal was the extent to which the threatening bankruptcy of one private company (Agrokor) was shaking-up the whole country. Subsequently, Croatia was faced with an almost unprecedented, possibly ill-conceived move by the government to rush in new legislation that would enable it to take over the administration of the same company. Be that new law as it may, the Agrokor affair has created a monster that has reeled everyone into a storm of political possibilities and impossibilities.

As the phenomenon of turbulence would have it a rush of new wind either intensifies or stops devastation. The public revelation few days ago that Croatia’s finance minister Zdravko Maric is Agrokor’s former Executive Director for Strategy and Capital had sent the wheels of political winds into a wild spin, threatening the collapse of the government.

Presently, Croatian Prime Minister Andrej Plenkovic is making last-ditch attempts to save the country’s government from collapsing second time in six months after sacking three ministers from its government coalition MOST (Bridge coalition of independent lists) partner amidst their, as well as MOST’s parliament speaker Bozo Petrov’s insistence that minister Maric could no longer enjoy parliament’s confidence and must go. They allege that Maric was in the know about the appalling financial situation in Agrokor and may have contributed to the threatening bankruptcy while working in Agrokor and Prime Minister Plenkovic stands firmly behind his finance minister, prepared for an all-out political combustion that may swallow his government into the cavern of no return. Ministers summarily dismissed/sacked are Interior Minister Vlaho Orepic, Justice Minister Ante Sprlje and Environment and Energy Minister Slaven Dobrovic. But, these sacked ministers are digging their heels in and refusing to go quietly – spurred on undoubtedly by their MOST leader Bozo Petrov who – wrongly to my view – insists that Prime Minister has no powers to sack ministers and that such sacking is tantamount to breaches of the constitutional order.

It needs to be said that the current Croatian Democratic Union/HDZ led government was constructed on sharp and deep fault lines that include coalition with the MOST whose political currents had trailed a path of seeking reforms on basis of criticising the HDZ majority rather than putting forth concrete submissions for reforms through camaraderie and reasonable compromise if need be. Furthermore, MOST and its leader Petrov were instrumental in the bringing down of Croatia’s former government in June 2016. So, the current Government was always going to be susceptible to dramatic shifts in the political landscape particularly if one considers the real possibility that MOST and Petrov are about bringing instability to Croatia – a reminder of the way UDBA/ Yugoslav secret service operated and still operates even if Yugoslavia has ceased to exist more than a quarter of a century ago.

Whether the aftershocks of the current political crisis in Croatia will cause the government to collapse is yet to be seen, but one expects that Prime Minister Plenkovic will do the utmost in his power and knowhow to avoid it. It’s too early to say whether the parliament will render a vote of no confidence in finance minister Maric driven by Petrov, but even if it does a collapse of government does not necessarily follow.

Amidst current trade-offs and talks to avoid a government collapse indications are that any new HDZ’s minority government and its stability will depend on whether similar fault lines to the ones that are currently causing epic tremours appear in new coalitions away from MOST. Given the political leanings on the scene the players in a new refurbished government may come from an available political mosaic of smaller parties such as HNS (Croatian People’s Party) and perhaps the unpredictable HSS (Croatian Peasant Party), some lone political party such as Milorad Pupovac from SDSS/Independent Democratic Serb Party as well as the independent members of parliament.

The prospect of Milorad Pupovac from the Serb party entering into a new government coalition is, frankly, frightening and utterly destructive. The overwhelming sentiment among the Croatian people is that a Serb associated with still unresolved condemnation of Serb aggression against Croatia in 1990’s that had as one of its tasks to stop the creation of an independent Croatia should not be in government. This sentiment is completely justified in this era when Croatia must turn a page and start living as a truly independent Croatian state that gives no leverage of success to any undermining coming particularly from Serb leaders, who are more loyal to Serbia than to Croatia.

Should HNS/Croatian People’s Party be the one to boost the government’s survival prospects then one would expect that its former president Vesna Pusic retracts her past statements in which she falsely and maliciously accused Croatia of aggression against Bosnia and Herzegovina during the 1990’s. Otherwise, any coalition between HDZ and HNS forming a government will be poisoned by Pusic’s extraordinarily evil statement. HDZ is the late president Franjo Tudjman’s party, it is the party that victory and Croatian independence are indebted to – a political marriage between that party and the party that still houses Pusic is unthinkable without Pusic’s public retraction of her vicious and false statement about aggression against Bosnia and Herzegovina; and without her public apology.

If alliance between HDZ and HNS ensues without resolving the Pusic statement then this is likely to be a scenario when civil unrest becomes really dangerous. That would be the time when everything begins to get truly confusing and crazy. It will defeat a great deal of needed and possible reforms and ensure a crash and burning of political and economic climate starting in 2018.


An unthinkable prospect of Social Democratic Party/SDP forming alliances with view to forming a new government, thus avoiding new and snap general elections sits like a dagger in the chest.

“We will seek new partners to continue the government and ensure political and economic stability,” Prime Minister Plenkovic told reporters in Zagreb. “Should in the next days there be no possibility to form a new parliamentary majority, we are ready for new elections.”

In the 1960’s British Prime Minister Harold Wilson coined the phrase “a week is a long time in politics” and currently in Croatia it feels like an unpleasant, tense eternity. A government collapse at a time when a third option amidst two major parties’ leads has not yet clearly appeared on the horizon as a shoe-in, a certain winner at elections, would spell more of the same and fuel the vicious political circle that has not brought the reforms or changes needed for Croatia. It is at times of collapse that party loyalties become stubborn, no room nor will to look the other way and embrace new political forces even if these may hold the biggest yet promise that Croatia will survive as an independent Croatian state, free, determined and wilful in creating the economic atmosphere for prosperity and well-being. Ina Vukic

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