April 10 (SeeNews) - Standard & Poor's has said that the announced debt payment freeze by food and retail group Agrokor, Croatia's largest private company, does not have an immediate effect on S&P's sovereign credit ratings on the country (BB/Stable/B).
Following Agrokor's April 2 announcement that the company had reached an agreement with its group of bank creditors to freeze debt payments, S&P downgraded ratings on Agrokor to 'CC/C' from 'B-/B' with a negative outlook last week.
"Although a disruption in Agrokor's business activities could affect Croatia's economy, we currently expect it would be manageable," the global ratings agency said in a statement late on Friday. "A potential fiscal impact on the sovereign should also be manageable, in our opinion."
The management of the indebted group was passed over to the government last week under newly adopted emergency legislation which aims to shield Croatia's economy from big corporate bankruptcies.
Standard & Poor's also said in the statement:
"By our calculation, Agrokor's staff of about 40,000 in Croatia (and 55,000 in total) accounts for approximately 2.5% of the country's total employment. The group's reported revenues of €6.5 billion in 2015 equaled about 14.8% of 2015 GDP, while direct taxes to the Croatian government in the form of corporate income tax payments--Croatian kuna (HRK) 247 million (€33 million) in 2015--amounted to just 0.2% of general government revenues, or 0.1% of GDP.
In addition, about 2,000 suppliers in Croatia rely on their business relationship with Agrokor. Although a disruption in Agrokor's business activities could affect Croatia's economy, we currently expect it would be manageable. For instance, in the short run we don't anticipate a complete suspension of business activities, given the importance of Agrokor's domestic supermarket network and other activities, as well as the standstill agreement with creditors, which gives the company the ability to continue operating. Furthermore, we currently observe a broad-based cyclical recovery in the Croatian economy, supported by many sectors. This pick up leads to our forecast of 3.1% GDP growth in Croatia for 2017.
A potential fiscal impact on the sovereign should also be manageable, in our opinion. We understand that banks have agreed to provide Agrokor with €300 million of additional credit lines to fund its short-term liquidity needs. If the agreement with the banks collapses and the government provides the €300 million in liquidity--which we do not expect at this stage--it could widen the deficit by around 0.6 percentage points to an estimated 2.8% of GDP, versus 2.2% in our current forecast. Moreover, in any case, such support would have to be in line with EU state aid rules, making any direct government support less likely."