May 11, 2017 / 12:52 PM / 3 months ago

RPT-Croatia's Agrokor faces race to restock as it fights for survival

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* Croatian food and retail giant on brink of collapse

* Summer tourist season key for debt-laden Agrokor

* Set 15-month deadline to complete restructuring

* Agrokor crisis threatens government, economy and Balkan region

By Michael Kahn and Igor Ilic

PRAGUE/ZAGREB, May 11 (Reuters) - A native of Croatia’s Dalmatian coast, Ante Ramljak will be well aware of the importance of the roughly 15 million tourists who will descend on the rocky coastline and green islands of this Balkan country over the course of the summer.

The food, drink, sun lotion and nappies those tourists expect to buy are considered key to Ramljak’s immediate efforts to stabilise Croatia’s teetering food and retail giant Agrokor after the government appointed him to stave off a bankruptcy that could send shockwaves through the region.

The potential collapse of Agrokor, which is the biggest employer in the Balkans and accounts for 15 percent of Croatia’s economic output, would almost certainly snuff out the flickers of recovery from three years of biting recession and could even topple the government of the European Union's newest member.

Keeping shelves stocked at the 700 stores of the Agrokor-owned Konzum supermarket chain, many of them the only shops for miles among scattered coastal villages, will be crucial to a successful restructuring of Croatia's biggest private company.

“The key challenge is not allowing Konzum to stop. If that stops, they are in trouble, as Konzum has been the cash-generating machine,” said Luka Oreskovic, a partner at investment and advisory firm Spitzberg Partners.

“If they don't have stock, they lose the shopper. So they need to fill the shelves ahead of tourist season and invest in marketing.”

Once lost, the cost of winning back shoppers would simply be too great, added Oreskovic, who estimates that Agrokor needs to find about 200 million euros ($217.4 million) to see it through the summer.

Ramljak did not respond to a request for comment but had said on his appointment that Croatia faced a “battle for Agrokor, a battle for Agrokor’s employees, suppliers and creditors”.

Debt Burden

The experienced businessman and former government energy adviser was parachuted in as Agrokor's crisis manager after the country’s richest man, Ivica Todoric, surrendered control of the company he founded in 1976.

Todoric, who still owns more than 95 percent of Agrokor, built up the company through an aggressive acquisition drive in Bosnia, Serbia and Slovenia but in so doing generated debts estimated at 45 billion kuna ($6.6 billion). That equates to six times Agrokor’s equity.

Yet no one knows if that is the true magnitude of the debt. Creditors have until June 9 to submit claims and PricewaterhouseCoopers has been brought in to review past financial reports after Agrokor said it may have made errors.

“There are so many things that we don't know concerning the level of the company's debt,” said Andrew Carrie, an analyst at Stifel Nicolaus in London. “There is no base from which to make an assessment.”

The conservative-led government of Prime Minister Andrej Plenkovic interceded in early April, effectively overriding an earlier standstill agreement reached between Agrokor and six lenders led by Russia’s Sberbank and VTB.

Sberbank and VTB’s exposure amounts to about 1.1 billion euros and 300 million euros respectively, giving Russia a potentially powerful lever of influence over the NATO member should Agrokor go under.

The government acted after Agrokor’s suppliers began halting deliveries. Owed about 16 billion kuna, suppliers feared they would be left last in the settling of Agrokor’s debts and might also be held liable by the banks for Agrokor promissory notes.

Under emergency legislation dubbed the Lex Agrokor law, the company has been set a 15-month deadline to complete its restructuring, with the government also appointing New York-based turnaround specialist AlixPartners as an adviser.

AlixPartners did not respond to a request for comment but has said that it would first focus on securing fresh liquidity.

Agrokor, which has interests in a vast array of businesses from construction to commodity trading, travel and tourism, secured an initial 80 million euro cash injection from five local banks in April, but Ramljak has said the company will need 450 million euros this year to operate normally.

Crown Jewels

A VTB spokeswoman declined to comment on the restructuring but a Sberbank spokesman this week said that the bank expects the first draft of a restructuring plan within six weeks.

Agrokor, meanwhile, must consider the prospect of being forced to shed prized assets such as water bottling business Jamnica and frozen foods and ice cream maker Ledo.

“Agrokor has some crown jewels it can sell," said Andrej Grubisic of Zagreb-based corporate finance consultancy Grubisic & Partners.

“The real cash cows are Ledo and Jamnica. But if they sell these as part of the restructuring, I'm sure they will get less than they wanted.”

He warned, however, that politics could get in the way after Plenkovic’s fragile coalition was split on a motion to dismiss Finance Minister Zdravko Maric over his previous involvement with Agrokor as its director for strategy and capital markets.

Maric narrowly survived the vote, but Plenkovic is left looking for new partners to secure a majority in parliament or face a snap election.

These factors could leave the government reluctant to make tough decisions, such as cutting jobs or selling off non-core businesses to keep Agrokor afloat.

“If the government decides it wants to protect jobs, the restructuring could run into problems,” Grubisic said.

“Whoever is implementing the restructuring needs to have a free hand to cut where needed, even if that means blood.” ($1 = 6.8217 kuna) ($1 = 0.9201 euros)

Additional reporting by Alexander Winning in Moscow; Writing by Matt Robinson; Editing by David Goodman

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