Two of Russia’s largest banks are in the process of gaining a significant stake in Croatia’s largest retailer. In this way Russia is expanding its reach on the periphery of the European Union, which for years has been trying to repel Russian investments. The state-owned Sberbank and VTB Group are starting to convert claims of about 1.4 billion EUR in debt to equity of Agrocor after the company went bankrupt last year amid alleged allegations of accounting fraud, revealed MandA Business News.
The deal became possible after Sberbank took a number of cases in a brutal battle to recognize its claims. The share that has not yet been set will exceed the Russian investment in Croatia after its separation from the former Yugoslavia.
It will give Moscow a new opportunity to expand its influence in a region that, even before the fall of communism, tried to get out of its orbit trying to achieve a higher standard of living and a more democratic system.
Sberbank says it just protects its investment and is not in the business of taking power in bankrupt companies. However, the Russian ambassador to Zagreb did not miss the opportunity to mark political significance.
As relations between Russia and the West are in their worst condition since the Cold War, any move by Russian companies to increase investment, military or other ties in the eastern EU member states is being rigorously tested by the Allies.
The Hungarian government, which faces the EU over its democratic values, has been criticized in 2014 when it signed a 12.5 billion EUR deal with the Russian Rosatom to expand the nuclear power plant in the country, just as the Moscow authorities annexed the Crimea from Ukraine.
Supported by the United States to achieve its independence, Croatia is a strong supporter of EU sanctions against Russia. And while Russian investments poured into neighboring Serbia and the Serb-dominated part of Bosnia and Herzegovina, in Croatia so far they were limited to hotels, Lukoil petrol stations and units in several other companies. Zagreb refused to take part in the Moscow-led South Stream pipeline and for a long time diverted the interest of Russian gas companies to the INA Industrija Nafte refinery.
Russian banks came out on stage when Agrocor owner Ivica Todoric had to take a loan for the business acquisitions of Slovenian rival Mercator Poslovni Sistem in 2014. The businessman, who turned Agrokor into the largest company in the Balkans with 60,000 employees and 6.4 billion EUR in revenue, was accused of fraud in October after an independent audit revealed hundreds of millions of euros of hidden company debt. Ivica Todoric, who lives in London, denies any abuse, but will be extradited to Croatia to face a Croatian court.
While write-offs are yet to be set before the planned debt-to-equity swaps, the Croatian retailer said lenders could have 4.7 billion USD in restructuring, due by July 10th.
When banks convert their debt, their new property will be the largest combined stake in Agrokor, although Croatian Economy Minister Martina Dalih noted that lenders usually do not remain long-term owners of companies.