The Cooking Of Agrokor’s Books

Agrokor Headquarters Zagreb Croatia

Croatia’s government claims that the results of the financial audit (first audit report released Thursday 5 October 2017) of key companies within Croatia’s ailing concern Agrokor justify the adoption of special law on extraordinary administration, which saw the state take control of the privately-held concern in April. My blogpost at that time emphasised an analysis that “when the government of a former communist country (Croatia) brings about and takes over with forced administration a calamitously failed private company (it subsidised and helped along the way as did the communist Yugoslavia regime via nationalisation of private assets and borrowed money injections) the gut tells you, regardless of the threat of thousands of job losses if that company sinks, you’re more than likely dealing with attempts of cover-ups of major incompetence, possible embezzlement come thefts and politically driven paths to sell and hand over the company or notable parts of it to a new entity.”

The extraordinary law rushed through the parliament then, commonly known as Lex Agrokor, has preserved jobs and contained the spread of systemic risk across the economy, the government said in a statement late on Thursday 5 October, after the Agrokor receiver unveiled the results of the audit conducted by PriceWaterhouseCoopers LLP. The government had said and still maintains that Agrokor is a company of systemic importance for Croatia and its collapse could have a catastrophic impact on the economy.

The audit revealed enormous discrepancies between 2015 financial results of nine key companies within Agrokor reported earlier and the audited figures. Inflated value of assets, understated claims towards group members, over-estimated inventory and undocumented costs were some of the markers for the discrepancies.

UK based branch of PriceWaterhouseCoopers LLP was named as auditor of the concern’s financial statements after preliminary probes revealed possible or likely accounting errors.

The revised financial report for the troubled Croatian retail, food and agriculture giant Agrokor, issued on Thursday, showed that the former management, led by company’s owner and founder Ivica Todoric, did not show the company’s full losses in its financial accounts. State extraordinary manager for Agrokor affairs Ante Ramljak presented the revised financial report for 2015 and 2016 which had been put together by the PriceWaterhouseCoopers audit agency.

Thursday’s report only included Agrokor’s major subsidiaries in the retail, wholesale, agriculture and food industries – Konzum, Tisak, Belje, PiK Vinkovci, Vupik, Ledo, Jamnica, Zvijezda and PiK Vrbovec.

The full consolidated report, including mother company Agrokor d.d., will be unveiled on Monday 9 October 2017 and then the government is expected to comment in detail

The revised report for the subsidiaries in 2015 showed 250 million euros more losses than Todoric’s management showed in its financial records. The state management’s figures showed that the subsidiary companies finished 2016 with 442 million euros in losses. The former management also inflated the capital worth of the subsidiary companies in 2015 by some 1.2 billion euros.

According to Thursday’s report, the subsidiary companies are worth 1.8 billion euros less than they were before 2015.

I will not say that any [legal] irregularities [in the previous management’s financial records] occurred. I won’t speak about this until we have the figures for Agrokor [d.d.]. Accounting irregularities occurred,” Ramljak answered when asked if there was criminal wrongdoing involved.

DORH [Croatian state attorney office] investigators are familiar with all these numbers,” he added.

Chief state attorney Dinko Cvitan had said in the past week that the full report will be important for DORH’s work.

The company’s role in the economy of Croatia is massive, with revenues of 6.5 billion euros in 2015 – almost 16 per cent of Croatia’s total GDP – and around 40,000 employees.

Agrokor employs another 20,000 people in neighbouring Bosnia and Herzegovina and Serbia, while it is believed that suppliers and companies for the Slovenian retailer Mercator – which Agrokor bought in 2014 – employ around 70,000 people in Slovenia as well.

Croatian news agency HINA reported on Friday 6 October that Maxim Poletaev, deputy chairman of the management board of Russia’s Sberbank – a major creditor of Agrokor, has suggested that Croatia should service the debt of the food-to-retail concern. Poletaev has told Russian news agency Interfax that the debt of Agrokor to the Russian bank is now debt of the Croatian government, which it should pay. Poletaev also said that Croatia should use government bonds to pay back Sberbank, according to HINA. Agrokor owes Sberbank some 1.1 billion euro ($1.3 billion). In August, the bank filed a complaint against Agrokor owner, Ivica Todoric, and, according to media reports, it now plans to sue the auditor which had previously verified Agrokor’s financial statements.

Charging Croatia’s government – that is, Croatian taxpayers and people in general, as debtor for corruption that went on in Agrokor and its subsidiary companies would add to the already calamitous plummeting of Croatia’s economy and living standards.

The web upon which depends a final outlook and solution regarding Agrokor and its possible crushing and devastating effect upon Croatia’s economy that could create a new army of poor, unemployed and devastation is currently in the finishing “touches” stages and nervousness and jitters are felt all the way to the parliament. Whether this nervousness hides attempts to cover up the identification of individuals in past echelons in power who have amassed wealth through theft is yet to be revealed. However, that matters have reached a sticky and nasty point is perhaps clear from Friday’s events in the parliament that saw the parliament’s meeting come to a stop due to inability to reach the needed quorum for the voting on appointment of three constitutional judges. Friday’s sitting of the parliament was geared for voting on appointment of three constitutional judges and on the establishment of a parliamentary inquiry commission for Agrokor. The needed quorum to vote for constitutional judges is two thirds of parliament members while the one needed to vote in the inquiry commission is the normal majority of half plus one. The Social Democratic Party/SDP refused to enter the parliamentary chamber and thus no voting was held on either of the two matters with the announcement by the ruling Croatian Democratic Union/HDZ that they hoped an agreement can be reached with SDP by Wednesday 11 October when it hopes to return the voting to agenda. The agreement relates to SDP’s insistence that former ministers can be appointed into the inquiry commission for Agrokor while HDZ disagrees on grounds of conflict of interest in the event that members of such commission could be called upon as witnesses in the unraveling of Agrokor dealings that has brought the country to its knees.

HDZ and SDP being at loggerheads is of course nothing new, but on this issue of investigating Agrokor’s dealings, obvious corruption, theft that appear to have been going on for decades while enjoying government support and significant financial subsidies and injections, the engaging at loggerheads becomes a marker of attempts to cover up serious past criminal dealings among powerful individuals. There are indications also that in order to achieve an agreement that would bring SDP back sides  on parliamentary seats, so that the voting in of constitutional judges can go ahead, HDZ may compromise and permit that certain category of former ministers may be appointed onto the inquiry commission for Agrokor! This, of course, would spell a disaster for independence of the commission’s dealings and deliverance – after all, all government ministers, regardless of their portfolio, are and always have been members of a tight club in which one covers for the other. 11th October 2017 is set to be a yet another stormy day in Croatia’s parliament on the matter of the establishment of the inquiry commission for Agrokor and its member composition. Monday 9th October when full audit report is expected for the whole Agrokor concern may indeed see the rats running in and out of parliamentary chamber, stalling the establishment of its inquiry commission for Agrokor. Ina Vukic



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



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