Russian money is key as Balkan retail giant's fate plays out

Zagreb (AFP) –


Moscow is deeply involved in scandal-ridden Balkan food and retail giant Agrokor's fate as two of its main creditors are Russian state-run banks, with analysts saying geopolitics loom large in what's in store for Croatia's top economic player.

Last month authorities issued an international arrest warrant for Agrokor's fugitive owner Ivica Todoric, suspected of falsifying accounts to hide unsustainable debts estimated to total at least 5.4 billion euros ($6.3 billion).

Agrokor is indebted in particular to Sberbank and VTB, two Russian state-controlled banks, to whom it owes about 1.1 billion euros and 300 million euros respectively.

With around 60,000 jobs, two-thirds of them in Croatia, Agrokor is the biggest employer in a region where unemployment runs high. Its network of suppliers means tens of thousands more jobs are at stake.

The revenues of the Zagreb-based company make up around 15 percent of Croatia's gross domestic product (GDP) -- so when faced with its potentially catastrophic fall, the government in April appointed a crisis manager to lead a restructuring process.

The issue figured high on the agenda of President Kolinda Grabar-Kitarovic on a visit to Moscow in October, the first by a Croatian head of state since 2009.

"It is a corporate issue" which should not burden relations between Zagreb and Moscow, she said.

Her Russian counterpart Vladimir Putin told reporters after their meeting that the two banks are "taking part in the programme of Agrokor's financial healing".

His spokesman Dmitry Peskov said that "Sberbank will protect its interests" and that "the Russian state will support our companies in that."

- Geopolitical goals? -

Croatian economic analyst Damir Novotny said the two banks were aware of Agrokor's struggle with debts when they began to grant it loans in 2014, suggesting there were "higher geopolitical goals in mind".

"This is not only about Agrokor but rather Russia's wider interest in southeast Europe," Novotny told AFP.

Alexander Sarayev, a banking analyst at the Russian rating agency RAEX, agreed that the political factor "cannot be ruled out".

But the decision "was based on the idea that it was a key company and would be supported by the Croatian authorities", he said.

Agrokor was at the time considered a booming economic jewel of the Balkans, with businesses in Bosnia, Serbia and Slovenia.

And Sberbank was anyway engaged in a policy of investments in eastern Europe, which was subsequently undermined by sanctions following the Ukraine crisis.

A member of NATO and the newest entrant to the European Union, "Croatia provided an opportunity for stronger investment and a Russian presence in the region through Agrokor," Croatian international relations expert Radovan Vukadinovic told AFP.

While the EU remained silent over Agrokor's troubles, there was a "quick American response," he said, referring to a 1.06 billion-euro loan led by US-based Knighthead Capital Management, which stabilised operations in June.

- 'Minimising losses' -

Talking to local media in October, the US ambassador to Croatia, Julieta Valls Noyes, praised a "group of US and other investors" who want to help to "save a company important inside and outside Croatia's borders".

Sberbank, which unlike VTB refused to participate in the new loan, accused Croatia of having nationalised Agrokor and said Zagreb should issue state bonds to pay the debt.

The measures by Zagreb "seriously infringe on creditors' rights", Sberbank chief executive German Gref told the Rossiya 2 news channel on October 19.

Croatia firmly rejected such claims.

Agrokor in September reported several legal actions targeting its property -- mostly initiated by Sberbank -- in Croatia, Britain and across the Balkans.

Sberbank also took the group to the London Court of International Arbitration.

Gref said that "for the past seven years the group faked its financial reports, cheating its creditors and the government".

Some analysts believe the geopolitical aspect has been overstated.

"In every respect Sberbank's behaviour is consistent with that of a worried investor trying to minimise its losses," said Timothy Less, head of the political risk consultancy Nova Europa.

"Knighthead Capital is a hedge fund which specialises in making money out of distressed companies -- no more, no less," he told AFP.