Europe | Too many eggs in one basket

Agrokor, the supermarket whose collapse threatens the Balkans

How did a firm that had a near-monopoly on food go bust?

IN CROATIA idyllic scenes can alter quickly. On good days, its holiday resorts are a haven for swimmers and sailors. But only a few miles inland, there are barren mountains where tempests can blow up fast and then whistle along the coast. This year (see article) fires were an added hazard.

A particularly dark storm-cloud is now hanging over the country’s business world, with the potential to depress the entire region, spoiling the optimism spurred by good tourist numbers and signs of accelerating growth. This follows the collapse into state hands of a food-and-retail chain whose myriad customers and creditors are still waiting to see the scope of the disaster.

Agrokor was the biggest private concern in Croatia and the western Balkans. It epitomised a cosy relationship between state and business that goes back to communist Yugoslavia and its aftermath. Its founder, Ivica Todoric, lives in a castle; he was a friend of Franjo Tudjman, the nationalist president who led the Croats through independence and war. With 700 Konzum supermarkets across Croatia, Agrokor is omnipresent in its homeland and active throughout the region.

In April, faced with huge debts, irate lenders and sceptical suppliers, Mr Todoric said he was “putting everything he had built” into the hands of the government. He is still technically the owner, but under a specially-passed law, the state is the administrator. This marks “the end of an era which began 25 years ago”, says Ante Ramljak, who is winding up the group.

The figures are extraordinary, given that the population of Croatia is barely 4m and that of the whole post-Yugoslav region about 20m. The Agrokor holding company comprises 143 firms, which employ nearly 57,000 people directly. If you include suppliers and everyone whose job would be affected by a chaotic collapse, says Mr Ramljak, up to 500,000 might be caught up in the mayhem. If everything the group owned were to close, he adds, Croatia’s economy might shrink by 10% or more. According to the European Bank for Reconstruction and Development, the conglomerate’s outstanding obligations are the equivalent of almost 15% of Croatia’s GDP.

Only a few years ago, Agrokor was a flagship of Croatian business. In the 1990s, when the country was embattled and isolated, outsiders shied away from investing but Mr Todoric scooped up parts of the old communist economy. Compared with the asset-strippers who swept through Croatia at that time, he was seen as a positive force, bent on modernising the retail business.

As Agrokor expanded across the region, says Dejan Jovic, a political scientist, it was hailed as a symbol of Croatian prowess. Politicians of all stripes backed Mr Todoric. Zdravko Maric, Croatia’s finance minister, worked for Agrokor until last year. The press gave the magnate an easy ride; it feared a loss of advertising, or being dropped by kiosks he controlled.

In 2014, Agrokor bought Mercator, a faltering Slovenian retail giant with outlets across the region. Croatians bristled with pride, but this sentiment was misplaced. By that time, Konzum faced keen competition from foreign rivals as Croatia’s market opened up after joining the EU in 2013.

The Mercator deal, financed by borrowing, proved far too big for Agrokor to swallow. While domestic and foreign banks began to shy away from it, Russian ones stepped in. That turned out to be a mistake. Sberbank, the Russian savings bank which is the biggest single creditor, is owed €1.1bn ($1.3bn) and has initiated a case against Mr Todoric for fraud. Sberbank has criticised Mr Ramljak for entering “roll-up” deals with some creditors to get fresh finance.

Agrokor’s known debts of at least €6.74bn ($7.9bn) are eye-watering enough, but until audits for suspected irregularities are completed, people will worry that the total could be larger, and nobody is really sure how much its assets are worth.

On July 27th Mr Ramljak began paying off debts to small suppliers, a drop in the ocean of what is owed. Agrokor sourced a high share of its food from local growers who resented the group’s power but needed its custom, says Tihomir Jaic, head of the Croatian Farmers’ Association. Next year many will offer their produce to other retailers, but their prevailing mood is fear.

The biggest fear is that the accounts will turn out to be such a mess that Mr Ramljak’s efforts to cushion the blow will have little chance of succeeding. If that happens, the region could slide back into the long recession from which it was just emerging.

This article appeared in the Europe section of the print edition under the headline "Chain reaction"

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