February 15, 2017 / 4:01 PM / 5 months ago

Moody's flags accounting transparency concerns at Agrokor

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LONDON, Feb 15 (IFR) - Moody's described Agrokor's accounting as "opaque in certain areas" in a report published Wednesday, although the rating agency believes the Croatian retailer has sufficient liquidity in the near-term.

Debt at Croatia's largest private company has plummeted in value in recent weeks on concerns around the company's finances, with a holding company PIK note falling to as low as 25 cents.

IFR reported last week that investors were also concerned around the company's accounting policies, particularly the way the food producer and retailer accounts for investments at subsidiaries in its cashflow statement.

In its report on Wednesday, Moody's said Agrokor's accounts "suffer from a lack of transparency in certain areas".

"According to management, the cash flow statement includes several undisclosed non-cash items," Vincent Gusdorf, a senior analyst at Moody's, said in the report.

"The breakdown of the financial statements between the restricted subsidiaries and the unrestricted subsidiaries is also difficult to understand because certain adjustments made on consolidation are not disclosed or explained."

The report notes that a non-cash inflow under Agrokor's operating activities is balanced by a non-cash outflow under its investing activities, to ensure its cash and cash equivalents matches the amount on its balance sheet.

"This makes Agrokor's cash flow generation difficult to assess," Gusdorf said.

Reliance on Russian Banks

The rating agency said Agrokor has enough liquidity to repay its 2017 debt maturities - Agrokor's restricted group has "no meaningful debt maturities" until September 2018 - even after it terminated a loan syndication last month.

Agrokor's restricted group is the entity at which its senior bonds sit, which excludes debt associated with Slovenia's Mercator and the PIK loan. But recently signed loans at the restricted group require the company to refinance the PIK 90 days prior to its mid-2018 maturity.

"However, the termination of the syndication is credit negative because the company remains dependent on a limited number of Russian banks with low credit ratings," Gusdorf said in the report.

Moody's calculates that Russia's Sberbank and VTB together provide €1.31bn of credit facilities, which correspond to 33% of the group's debt and 52% of the restricted group's debt.

Agrokor's senior bonds fell to record lows on Friday after Russia's ambassador to Croatia said the company may have exhausted its credit with the country's banks.

"We've on several occasions credited Agrokor, believing it will help stabilise the company. We're not considering fresh loans," Anvar Azimov was quoted by the state news agency Hina as saying.

"If Agrokor turns to Sberbank for a new loan, it will be considered in the light of financial difficulties it is currently facing."

Moody's rates Agrokor B3 with a stable outlook and did not change this on Wednesday. (Reporting by Robert Smith)

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