Moody’s sees Croatian Agrokor’s debt settlement as credit positive

Moody’s said that reaching a preliminary debt settlement between debt-laden conglomerate Agrokor and its creditors increased the likelihood of getting a final deal by the Jul 10 deadline to avoid bankruptcy and reduced the risk of disorderly restructuring and negative effects on the economy from prolonged bankruptcy of the conglomerate. Given the large size of Agrokor as it employs 2.5% of the workforce in the country, the above developments are credit positive for the sovereign, the document reveals. The draft agreement supports Moody’s baseline scenario of limited effects from Agrokor’s restructuring on GDP growth and budget revenues this year and low probability of disorderly restructuring. Moody’s expects GDP growth at around 2.7% this year, only slightly moderating from 2.8% last year.

The preliminary deal also reduces the likelihood Agrokor developments to shake the political scene again, Moody’s notes. The Agency sees two channels of affecting domestic politics – by threatening the slim 77 out of 151-seat majority of the government and distract it from its reform agenda.

Moody’s warns though that the risks remain as reaching a preliminary deal does not guarantee that the sides would ink a final one by Jul 10 since talks involve 6,000 creditors with claims of around HRK57bn (EUR7.7bn). Two-thirds of those should ink the deal. Thus negative effects might come from lower investment of Agrokor companies and its suppliers as well as risks for employment given the size of the conglomerate.

Moody’s rates Croatia’s sovereign at Ba and the outlook is set at stable since last March when the Agency upgraded it from negative because of the stronger than expected mid-term growth and the halt in the public debt increase. It had scheduled to review the rating at the end of February but failed to do so, like in November last year. The next review by Moody’s is planned for Aug 17. In March, Moody’s said in the annual update of the country’s credit report that Croatia’s country credit profile is negatively affected by the weak potential growth and the slow structural reforms.

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