Agrokor is Croatia’s largest privately-owned company.
After it downgraded Agrokor’s credit rating from B2 to B3 in early January, the Moody's credit rating has now decided to downgrade the rating outlook from neutral to negative, reports Poslovni.hr on February 25, 2017.
“Our decision to change the credit rating outlook for Agrokor reflects uncertainties presented in its credit profile which is limited by even more difficult access to credit markets and the need to stabilize its operating performance and indebtedness”, said Vincent Gusdorf.
Agrokor’s holding Adria took out loans to finance the acquisition of Slovenian retail giant Mercator in 2014. Failure to refinance these loans could potentially lead to increase in debts from the group, either on 8 March 2018, due to new clauses in some of the banking document, or on 8 June 2018 when original loans were due to be repaid. The potential capital loss could adversely affect the ability of Agrokor to access credit markets in the near future, warned Moody's.
Furthermore, the credit rating agency believes that Agrokor debts to vendors are at very high level. On 30 September 2016, they reached as much as 16.2 billion kuna (2.18 billion euros), which corresponds to a delay in payment of 150 days, compared to 60 to 90 days for similar companies in retail sector. Potential shortening of the payment deadlines could stretch Agrokor's liquidity, although Moody's acknowledges that the payment terms have been generally stable since the acquisition of Mercator in 2014.
On the positive side, Agrokor has sufficient liquidity to pay off debts in 2017 and 2018. Moody’s states that, in late September 2016, the group reported having 2.29 billion kuna (307 million euros) in cash and cash equivalents, while the debts which need to be repaid in the period amount to about 959 million kuna (127 million euros) in short-term debt and 150 million euros in longer-term loans.
Agrokor's B3 rating is based on Moody's assessment that its debt will gradually stabilize. According to Agrokor, its revenues remained stable during the third quarter of 2016, despite strong competition from discounters.
Moody's currently estimates that Agrokor's gross debt at the end of 2017 will reach six times the value of EBITDA, while at the end of 2018 it should increase to 6.8 times the EBITDA value. These estimates are based on the premise that Agrokor will stop the erosion of its EBITDA, which in the first nine months of 2016 fell by 9.6 percent, to 3.02 billion kuna (400 million euros).
