Resolving situation at Uljanik shipyard could cost Croatia 1% of GDP, S&P warns

Resolving situation at Uljanik shipyard could cost Croatia 1% of GDP, S&P warns
Dredger Willem van Rubroeck, built by Uljanik shipyard for Luxembourg's Jan De Nul Group, being launched into the sea in August 2017. / Uljanik Group
By bne IntelliNews September 24, 2018

Resolving the situation at shipbuilder Uljanik could cost the Croatian government up to 1% of GDP, S&P Global Ratings warned on September 21. 

Shipbuilder Uljanik which owns the Uljanik shipyard in Pula and the 3. Maj shipyard in Rijeka, is in severe financial difficulties. Shortly after the company managed to pay July salaries and persuade striking employees back to work, it lost four vessel construction deals, resulting in its accounts again being temporarily frozen.

“Although we believe that contingent fiscal risks are contained, some state guarantees could be activated and fall on the government's balance sheet,” S&P said. 

“In particular, the resolution of the troubled Uljanik shipyard, which is currently in search of a strategic investor and could otherwise face bankruptcy, could cost the government up to 1% of GDP. The precise cost  however depends on the final scenario, and the possible finalisation of ships under construction.”

Zagreb is considering three possible scenarios for the shipbuilding company, including insolvency, Croatian Prime Minister Andrej Plenkovic said on September 13. 

The three scenarios taken into consideration by Croatia for the financially troubled company are insolvency, a restructuring plan acceptable to the European Commission and the government, or a new strategic partner, Plenkovic said on September 13.

He added that insolvency does not mean the end of the company, but restructuring. The second scenario is changing the current restructuring plan to make it viable and acceptable to the European Commission and the government, while the third envisages another potential strategic partner finding a new solution.

Croatian docks currently employ 7,500 people and 2,000 subcontractors, a fall of 60-70% since the 1990s, Sinisa Ostojic of the Croatian Shipbuilding Corporation Jadranbrod said during the cabinet session.

To a large extent, Croatian shipyards share the same fate as those in the rest of the world as 90% of ships are intended for export, and aside from LNG tankers and cruise ships, other products are much less in demand, Ostojic said.

On a more positive note, Ostojic pointed out that Croatian shipyards have 34 vessels on their order books worth $1.3bn whose delivery is expected over the next three years. 

Despite the warning over Uljanik, revised its outlook on Croatia to positive from stable on September 21, while affirming its 'BB+/B' long- and short-term foreign and local currency sovereign credit ratings on the country.

The outlook revision reflects the rating agency’s expectation that Croatia's economy will continue to expand and government debt will reduce further. And while the situation at Uljanik has recently worsened, risks related to the country’s largest food retailer Agrokor are gradually reducing following the settlement with the majority of its creditors.

“Our ratings on Croatia reflect our view of its sound external position, wits external indebtedness reducing on the back of persistent current account surpluses. Additionally, supporting the ratings are recent strong fiscal consolidation efforts, with the government likely to close another year with a headline fiscal surplus,” S&P said in a statement. 

 

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