The process of reaching a settlement under the extraordinary administration procedure of Agrokor is one of the most complex in Croatia and in Europe due to the complexities of Agrokor as a business and the total amount of the debt as well as the large number of creditors, 5.700 of them. This section contains all the news on the process of reaching of a settlement for all the key stakeholders, as well as the latest details and developments.
Extraordinary administration addresses the Board of Economy of the Croatian Parliament
27. Jun 2018.
Extraordinary Commissioner Fabris Peruško addressed the present:
Dear Deputy Prime Minister, dear Minister, dear President of the Board, dear Members of Parliament, Ladies and Gentlemen,
Thank you for the invitation to the session of the Croatian Parliament’s Board of Economy. Last time we were here on 18 April to inform you of the Settlemnet Plan Term Sheet. In the meantime we were able to bring the very intensive negotiations with all creditors to an end and agree on the final wording of the Settlement Plan. Mrs. Weber and I, as the Extraordinary Administration of Agrokor, will use this opportunity to personally familiarize you with all the details of the Settlement Plan between Agrokor’s creditors.
The Settlement Plan we are about to present was unanimously approved by all five representatives of Agrokor’s creditors on Tuesday, 19 June. They have been acting through the Creditors’ Council throughout the Extraordinary Administration Procedure.
On Wednesday, 20 June, the Commercial Court in Zagreb received the Settlement Plan and all pertaining documents and published them on the Court’s e-bulletin bord. The documentation was in parallel published on the web-site nagodba.agrokor.hr, in the Croatian and English version.
Thus the penultimate stage of the Extraordinary Administration Procedure at Agrokor has been completed. The finalization of the Procedure depends on the outcome of the creditors’ voting at the hearing convened by the Commercial Court for 4 July.
The hearing itself, the Settlement Plan implementation as well as the current operating position of Agrokor will be discussed in more detail by my colleague Mrs. Weber.
Prior to that, I will present around 15 slides to walk you through the key elements of the Settlement Plan, the wording of which, together with all the Schedules, comprises around 7300 pages of material.
The Settlement Plan consists of two parts – the descriptive and the constructive one – and comprises 32 Chapters and 36 Schedules.
The documentation elaborates in detail the corporate structure of the New Agrokor Group, the treatment and form of recovery of pre-petiotion creditors’ claims, the breakdown of the new debt of the New Agrokor Group and its capital structure as well as other details related to the Settlement Plan implementation.
A constituent part of the documentation are the detailed tables containing all claims, the payments made to date over the course of the Extraordinary Administration Procedure and the recoveries to be made by way of settlement for each individual claim.
One of the Schedules also contains the breakdown of the distributable value of companies subject to the EA Procedure.
Given the number of companies within the Agrokor Group and the complexity of its financial restructuring, the best model for the repayment of debt to the creditors, as confirmed by the creditors themselves, is the Entity Priority Model or EPM.
The model in question is a fair and equitable way of recovery used in major international companies’ restructuring procedures and enjoys broad acceptance among international creditors.
This model, in accordance with the statutory provisions, manages a waterfall of claim recoveries for each individual company, including the guarantees for other companies’ debts, and the claims are viewed from the perspective of their legal positions.
It is important to note that the selection of the EPM was one of the main reasons why the Extraordinary Administration was able to win the litigations abroad. While there are some criticisms against this model, international legal practise has confirmed it to be equitable.
Results of the Settlement Plan and the EPM
In line with the calculations made according to the EPM, the majority ownership share of the New Agrokor Group will be held by financial creditors, out of which the largest single owner will be Sberbank holding a share of 39.2 per cent. Bondholders will hold an ownership share of 24.9 per cent, VTB 7.5 per cent and Zagrebačka banka 2.9 per cent. The new ownership share held by suppliers will be 4.7 per cent.
The highest level of 100 per cent of recovery was realized by micro companies, whose claims were repaid in full. Agrokor’s suppliers will on average recover 60 per cent of their claims for goods and services, with 46 per cent of suppliers to see a recovery of between 80 and 100 per cent. The rate of return to be realized by bondholders will range from 40 to 80 per cent. The largest number of local and international financial institutions and other creditors will recover up to 20 per cent on average.
Viewed by creditor groups, suppliers and bondholders will on average have lower write-offs than financial institutions.
The following is an explanation of the recovery calculations:
Part of the Settlement Plan are also two separate agreements: with the suppliers and with Sberbank.
The agreement reached with suppliers relates to the payment of the so-called border debt subject to certain conditions, while the maximum total amount of border debt to be paid over a four-year period (2018-2021) amounts to EUR 70m. The conditions for border debt payment are related to the operating result of Konzum and are reflected in the minimum agreed EBITDA to be generated by Konzum per calender year, which amounts to EUR 38.8m.
With regards to those suppliers which were financing Agrokor by means of recourse bills of exchange, the Settlement Plan comprises an agreement reached through the mediation of the Extraordinary Administration according to which Aisle Dutch TopCo will not exercise its rights, including collection, arising from assigned claims against the recourse debtors if they have reached an agreement with the creditors (banks) pursuant to which they will settle between 30 and 40 per cent of the claim and submit evidence of such agreement to the Extraordinary Commissioner by the date of Settlement Plan confirmation.
The special arrangement with Sberbank stipulates that Sberbank shall over a period of four years – from 2018 to 2021 – have an annual contingent right to receive payments, provided that a group of 17 material operating companies of the Group generate the agreed treshold of operating profits. The agreed EBITDA treshold for 2018 is EUR 245m, stepping up to EUR 288m in 2021. The total amount to be paid in four payments to Sberbank cannot exceed EUR 60m and the obligation to pay terminates upon expiry of four years, irrespective of the amount which will finally be paid.
The SPFA creditors and Sberbank have agreed all terms for the SPFA extension. The extension is planned until mid 2019 at the latest, while a refinancing is also possible before that time.
The agreed interest rate amounts to Euribor + 8 per cent (6 per cent in cash / 2 per cent PIK) until 10 January, 2019.
From 10 January to 10 February, 2019 the interest rate will be Euribor + 10 per cent and it increases by +0.50 per cent of PIK in every month to follow. In July 2018 a fee of two per cent will be paid, to be followed by an additional one per cent each in January and in April 2019, respectively.
In shortest possible terms, these are the important highlights from the Settlement Plan of Agrokor’s creditors. All details and aspects of this extremely complex bankruptcy plan the implementation of which is intented to make it possible for Agrokor to survive, preserve operations and jobs and create the preconditions for the values of the company, which had literally collapsed under the burden of its debt, to be rebuilt, are publicly available.
The Extraordinary Administration procedure was initiated in order to prevent the consequences of this collapse to spill over to the rest of the Croatian economy as well as the economies of neighboring countries in which Agrokor operates.
In case the creditors should vote in favor of the Settlement Plan on 4 July and if this Settlement Plan should withstand all the challenges still ahead of it and become effective, we will be able to proceed with following it through. This is when the last stage of Agrokor’s restoration will begin and this is when the Extraordinary Administration Procedure should be successfully brought to its end.
At this point I would like to point out my belief that the successful completion of the settlement process will prove that we have sufficient social capital to deal with a crisis situation which might have had extemely negative consequences for Croatia and the entire region and resolve it in a good way. This social capital is expressed both in the reaction of the Government and in the reaction of everybody involved in the problem – the Group’s employees, suppliers, local banks etc. Therefore a positive outcome will have further positive effects on strengthening the Croatian institutions in order to prevent finding ourselves in a similar situation going forward.
After him, Deputy Extraordinary Commissioner Irena Weber also addressed the present:
Dear Deputy Prime Minister, dear Minister, dear President of the Board, dear Members of Parliament, Ladies and Gentlemen,
Like my colleague Mr. Peruško, I would like to thank you for inviting us to this session of the Croatian Partliament’s Board of Economy.
Allow me to present you over the next ten minutes or so, the steps ahead of us until 4 July as well as after the hearing and share with you the key information on the operations of Agrokor in the first quarter of the year.
As you know, the Commercial Court in Zagreb has scheduled a hearing fo 4 July, 2018 to vote on the Settlement Plan of Agrokor’s creditors. The hearing will be held at the Dražen Petrović Basketball Center, CIBONA Hall, on next Wednesday beginning at 08:00 a.m.
I would like to also use this opportunity to invite all our creditors with outstanding claims to respond to the invitation and attend the Settlement Plan voting hearing. Over the course of the procedure around 5700 creditors filed their claims, out of which slightly less than 2500 – the smallest ones, micro entrepreneurs and family farms – were paid in full. This means that more than three thousand creditors might be voting on the Settlement Plan and we have from our side, in cooperation with the Commercial Court, done our best and are still doing our best to enable them to exercise this right.
According to the Court’s conclusion of 21 June, the right to vote is held by all creditors whose claims have been determined, to the extent of the part of their claim which is still outstanding. Hence, not entitled to vote are those creditors who received full recoveries and creditors to the extent of their claim having been partly recovered. Not entitled to vote are also affiliates and subsidiaries subject to the Extraordinary Administration Procedure.
It is important to note that the Court has also invited challenged creditors to the hearing. According to the Court’s ruling, their right to vote will be recognized if at the Settlement Plan voting hearing the Extraordinary Commissioner and the present creditors with voting rights so agree. In case no agreement can be reached, this decision will be made by the Court at the hearing itself, by way of a non-appealable ruling.
Given the large number of creditors and claims, the voting at the hearing will not be done by show of hands or by calling the roll, but rather by a mobile application specifically designed for this purpose. In particular, although this is a court hearing, Agrokor as debtor is obliged to provide the Court with any support required in organizing this hearing so that Agrokor’s subsidiary m-Start has developed this special application intended to significantly facilitate and speed up the process of voting of such a great number of creditors.
Thanks to this application during the course of the hearing everyone will know in real time who has cast which vote.
In the following days we shall provide the creditors of Agrokor, through our website and the media, with all information required to smoothly proceed with voting on the Settlement Plan.
As regards the voting on the Settlement Plan, the majority of challenges and disputes, except the challenge imposed by Adris Group, were successfully addressed during the Settlement Plan negotiation process. Given that the wording of the Settlement Plan to be voted upon has received the support of creditors representing around 85 per cent of all claims with voting rights, we expect and hope that the Settlement Plan will receive the required affirmative vote.
After the hearing we will be waiting for confirmation by the Commercial Court and all this should be completed within the statutory deadline by 10 July, which we consider to be a great success. Thereafter the period starts when creditors may lodge their complaints on the Settlement Plan, to be decided by the High Commercial Court. Resolving the appeals will depend on the High Commercial Court, but according to past experience and the assessments made by law professionals, we may expect the Settlement Plan to become effective in October. This is when its implementation will start, which is expected to last between three and four months.
The operating teams in all the operating companies in cooperation with KPMG have to date identified more than 70,000 steps to be made over the course of the Settlement Plan implementation – from founding the mirror companies and transferring the assets to them, to transferring all types of contracts, with employees, suppliers and all business partners.
The beginning of operations of the New Group and the mirror companies is targeted for the first working day of the new year, which would be the best possible date to begin operations, also due to tax regulations and financial reporting. However, whether this goal will be achieved primarily depends on when the Settlement Plan will become effective, and this is completely in the hands of the Court.
With regards to Agrokor’s operations in the first quarter of this year, and this is the responsibility of the Extraordinary Administration, operating margins in all the companies have been growing and operations overall have continuously been getting better and more stable.
With each step that we are getting closer to the effectiveness and finalization of the Settlement Plan, the risk of financing is being significantly reduced, which also results in lower interest rates and thus we expect, as my colleague Mr. Peruško already told you, to refinance the roll-up loan with a standard loan with significantly more favorable conditions.
As for me, I am convinced that this Group is soon to become a desirable client for any commercial bank.
This conviction is based on the operating results:
All the three business divisions have been operating very well. Looking at the 16 key companies in three business segments – Retail and Wholesale, Food and Agriculture – at Group level, on an unconsolidated basis the revenues generated were slightly lower than budgeted for the first quarter, but in spite of that operating profits have exceeded plans. Thus in April the Agrokor Group has on an unconsolidated basis generated HRK 274.6m of EBITDA, which is 9.6% more than budgeted.
We are particularly pleased with the result of Konzum, which has exceeded budget. The focus has been on arranging all relationships on an arms-lenght basis, which primarily relates to the leases. In the pre-petition period, due to unfavorable sale and leaseback arrangements, the rents were two or three times higher than market values and no retail chain would be able to bear such conditions. In May Konzum’s revenues were higher by almost eight per cent, with margins having grown by 16 per cent and instead of the planned HRK 125m they reached HRK 150m. This is a direct consequence of the more profitable operations, where we receive feedback from the market that our competitors are surprised by Konzum’s strong and fast recovery. I truly believe that no one has expected such fantastic comeback.
At the end of this introduction, I would above all like to thank all Agrokor Group employees who have done their part of the work under really difficult and demanding circumstances in the best possible way. This contribution of theirs was key to preserving Agrokor’s operations when the crisis was at its peak early last year, as well as the recovery we are talking about now.
We are here to respond to any of your questions. Thank you.