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4-Traders Homepage  >  Equities  >  MOSCOW INTERBANK CURRENCY EXCHANGE  >  Sberbank Rossii PAO    SBER   RU0009029540

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Sberbank Rossii : Croatian company's crisis ripples across Balkans

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06/19/2017 | 12:32pm CET
Milk cartons are seen in milk factory Milkos in Sarajevo

Adin Fakic, chief executive of Bosnia's oldest dairy, likens the crisis engulfing his biggest client Agrokor to an earthquake. The epicentre is in Croatia, but the tremors are felt across the farmlands of neighbouring Bosnia and beyond.

For a decade, Fakic's Milkos has built up business with Croatian supermarket chain Konzum, which now buys roughly 35 percent of its annual output of some 20 million litres of milk.

Only Konzum isn't paying anymore, not since the sprawling conglomerate that it is part of – Agrokor – began to teeter under the weight of an estimated $6 billion in debt.

Fakic's experience highlights the ripple effects of the crisis enveloping Agrokor as it now faces the risk of having to cut contracts with hundreds of farmers.

It's a crisis that follows years of debt-fuelled expansion as Agrokor snapped up companies and well-known brands across the ex-Yugoslavia in countries torn apart by war 25 years ago.

Thousands of jobs are now on the line as its dramatic collapse since the start of the year risks undermining efforts to further integrate the small economies of the region.

"Agrokor's expansionary efforts were seen as a precursor of a new wave of regional business integration," said Luka Oreskovic, a partner at investment and advisory firm Spitzberg Partners. "However, with the Agrokor crisis still unfolding, further regional economic integration will have to wait." The likes of Slovenia and Serbia, he said, "have already moved to shield their domestic markets from a potential Agrokor collapse."


The Croatian government is scrambling to avert bankruptcy at the once family-run Agrokor, which employs 60,000 people across the region.

Thousands more jobs are on the line among suppliers. "If we accumulate a surplus of goods, we'll have to cancel our contracts with farmers, about 300 of them in the worst-case scenario," Fakic told Reuters. "That would mean thousands of job losses across the country."

"Bosnia-Herzegovina is a small country and every irregular move on the market, which we could describe as a mild earthquake, has a strong impact," he said. "The food industry is particularly sensitive."

The crisis at Agrokor – the biggest privately-owned company in the region with interests ranging from sausages to ice cream, and construction to tourism – has sent shockwaves across the region. Roughly half of the company's workforce is employed outside Croatia in fellow ex-Yugoslav republics Slovenia, Serbia, Bosnia and Montenegro.

Serbia estimates that some 700 companies are linked to Agrokor either directly or via its suppliers, and that Serbian suppliers are owed some 130 million euros. Agrokor's debt to suppliers in Slovenia is estimated at 40 million euros.

Croatia's neighbours are already taking steps to protect themselves.

In May, the Slovenian government named a trustee to the management board of Agrokor-owned Mercator, Slovenia's largest retailer with some 10,000 employees, and tasked him with overseeing the firm's dealings with its parent company.

In Serbia, the daily Politika reported this month that courts in Belgrade and the town of Zrenjanin had effectively issued a stay on the sale or use as collateral of two Agrokor-owned companies under a motion filed by Russian lender Sberbank, Agrokor's biggest creditor. The report could not be independently confirmed.

"Every country in the region will turn to protectionism," Sasa Djogovic of the Belgrade-based Institute for Market Research told Reuters.

He said food manufacturers' stocks in Serbia were up 22 percent in April, "which suggests that producers would rather stockpile products than hand them over to Mercator S," the Serbian arm of Agrokor's Mercator.


In Croatia, some 150,000 people are believed to be employed by Agrokor's suppliers. Faced with such a seismic threat to the country's fragile economy, the government intervened in April to take control of Agrokor from its founder, Ivica Todoric, with the aim of restructuring it over the next 12 months.

Ante Ramljak, the crisis manager appointed by the government to secure Agrokor's immediate liquidity and start the process of restructuring, said his own "very conservative estimate" was that 30 percent of the 180,000 jobs dependent on Agrokor in Croatia – 30,000 direct, 150,000 indirect – would have disappeared immediately had the company simply gone bankrupt.

That would have led to "a downward spiral to which there is no end," he said last month.

Restructuring will entail the quick sale of any number of Agrokor's dozens of companies, bringing with it possible downsizing and job losses. Many suppliers, too, fear they will never recoup the money Agrokor owes them, once the major creditors take their share.

Creditors had until June 9 to submit claims, although it make be weeks before the true scale of Agrokor's liabilities is clear.

Suppliers have twice threatened to halt deliveries over the repayment of debts. Some have raised alarm over promissory notes issued by Agrokor that could be cashed in at banks. But the notes said banks could claim the cash back from the suppliers if the banks were not paid by Agrokor. Deliveries have in general continued undisrupted, but some suppliers have started asking for payment in advance.

At the Milkos dairy, which was established in 1952 under socialist Yugoslavia, survived Bosnia's 1992-95 war and was privatised in 2004, Fakic said he wanted his money back.

Problems with payments from Agrokor began in March, he said, but he declined to specify how much Milkos was owed.

"Suppliers want regular and secure payments, we need guarantees for the future," Fakic said.

"We expect them to pay the debt."

(Additional reporting by Aleksandar Vasovic and Matt Robinson in Belgrade, Igor Ilic in Zagreb and Michael Kahn in Prague; Writing by Matt Robinson, editing by David Evans)

By Daria Sito-Sucic

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Financials ( RUB)
Sales 2017 1 900 B
EBIT 2017 1 132 B
Net income 2017 734 B
Debt 2017 -
Yield 2017 4,38%
P/E ratio 2017 6,82
P/E ratio 2018 6,14
Capi. / Sales 2017 2,67x
Capi. / Sales 2018 2,53x
Capitalization 5 080 B
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 18
Average target price 271  RUB
Spread / Average Target 20%
EPS Revisions
Herman Oskarovich Gref Chairman-Management Board & CEO
Sergey Mikhaylovich Ignatiev Chairman-Supervisory Board
Nikolai Viktorovitch Tsekhomsky Director-Finance & Senior Vice President
Georgy Ivanovich Luntovsky Deputy Chairman-Supervisory Board
Nadezhda Yurievna Ivanova Member-Supervisory Board
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1st jan.Capitalization (M$)
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