The European retail group still struggling to ditch its Russian owners

On the eve of the invasion of Ukraine last year, the largest Russian bank was deep in talks about selling its largest European asset.

The bank’s negotiators held a 12-hour marathon discussion with a prominent Hungarian investor, who was ready to pay hundreds of millions of euros for their stake in Fortenova, a retail group that is Croatia’s top-grossing company.

They had prepared meticulously and had the approvals from various international bureaucracies. But when they woke up the next day and gathered for breakfast, news of the war flashing across everyone’s screens left them clueless about what to do next.

“They decided to wait, then two weeks later they got the OK. By April they had signed,” says a person with knowledge of those events. But the deal, like several similar others, would soon fail as the world filled with wartime resentments and suspicions.

Fortenova has a chequered history and was just climbing out of painful restructuring. But to Croatia, it is a symbol of entrepreneurial spirit, a kind of local equivalent of Walmart with a similarly supersized effect on the overall economy.

With brands such as the Konzum supermarket, it is the country’s largest private employer, with 45,000 staff and thousands of suppliers. Its annual revenues — north of €5bn — sometimes exceed 10 per cent of Croatia’s GDP. With a sales network spanning the entire region, its failure would undermine the food industry across the western Balkans.

Since the war broke out, Fortenova watched with growing alarm as its majority owner — not just any Russian bank but Sberbank, the Kremlin-owned giant vital to Moscow’s financial health — made increasingly futile attempts to divest.

The company found itself passed between potential saviours spanning central Europe, Russia and the Middle East, as a tightening sanctions regime made any purchase riskier and riskier.

Two EU-based attempts to acquire the Russian stake each ran aground in dramatic fashion, raising suspicions in Zagreb of other governments meddling in the sale and leading to Croatia’s own government pressure campaign. Then came an opaque takeover attempt by an unknown UAE investor with ties to a Kremlin-connected tycoon.

The saga of Fortenova is a cautionary tale of what can happen when corporate interests become ensnared by geopolitical tensions. As relations between Russia and the west look increasingly irreparable, unwinding the ties of the previous era can be complicated and costly, and can open the door for ill intentions.

Still stuck in limbo, Fortenova has hatched a plan for investors to take over from the Russians and clean up the mess. But it is also bracing itself for a default that would see its creditors take over. Sberbank did not respond to requests for comment on this story.

“The company has toxic ownership,” says Fortenova chief executive Fabris Peruško. “We cannot deal with Russian sanctioned parties. We did it for the last year, we tried everything. But now we must make a bold decision.”

Flowers and powers

The company that would eventually become Fortenova is literally rooted in Balkan soil.

In 1976 Ivica Todorić, an entrepreneurial 25-year-old, founded a company to grow and distribute flowers. Rapidly expanding to edible plants, his company, Agrokor, defied communism to become among the largest in Croatia.

A steady diet of acquisitions led to expansion across the Balkans. Agrokor would not survive it, however: it racked up losses and debt and defaulted in 2017, sending shockwaves through the Croatian economy.

Sberbank was Agrokor’s biggest lender, and restructuring made it the largest owner with a 42 per cent stake. Another Russian bank, VTB, held 7 per cent. The Croatian government was deeply involved; managers and politicians shuttled between Zagreb and Moscow.

That was also the only time Russian president Vladimir Putin got involved. Croatian president Kolinda Grabar-Kitarović visited him in the Black sea resort town Sochi and complained about the difficult situation in Agrokor, according to a person with knowledge of those events.

Caught unaware, Putin was furious that Sberbank had got bogged down in Croatia in that way and demanded it get its money out, according to a person close to the bank. Putin’s spokesperson Dmitri Peskov declined to comment on what he called “commercial issues.”

A new management was put in place, with Peruško as CEO. It began to clean up the company’s fractured ownership, messy structure and diverging loans.

About 70 creditors were replaced with a four-year, $1.2bn bond placement led by HPS Investment Partners, restoring the company’s liquidity. One of Croatia’s richest men, energy entrepreneur Pavao Vujnovac, amassed a 29 per cent stake and joined the board. Some units were spun off, others shuffled around. The reconstituted company was named Fortenova in 2019.

But as tensions rose in Ukraine, the bank wanted out of its €1bn stake. In early 2022, a frontrunner emerged: a bid from Hungary.

Prime Minister Viktor Orbán was an obvious choice for the Russians to ask for help. He was a friendly leader who wanted to grow his influence in the Balkans. Better yet, his circle of loyal businessmen had just the investor who could bid for Fortenova.

“Viktor really wanted that deal,” says a person familiar with the prime minister’s thinking. The designated bidder was Indotek, a commercial real estate group of self-made Hungarian billionaire Dániel Jellinek, an occasional business partner of István Tiborcz, Orbán’s son-in-law.

“Jellinek is clearly very influential in Hungary and [the Russians] thought this was great,” says another person close to the events. “They had an offer letter in January 2022.”

The sides were one final step away from inking the deal, pending one last permit. Because a small portion of Fortenova’s shares was under control in a UK jurisdiction, the UK Treasury’s sanctions watchdog, the Office of Financial Sanctions Implementation, or OFSI, had to give a green light as well.

But the war broke out in the meantime, and that last licence, although never turned down, never came — a result, some in Zagreb and Budapest believe, of Orbán’s closeness to the Russians and the sale to a friendly tycoon.

Asked about reasons for the indecision, OFSI says it does not comment on specific cases, telling the FT that it reviews licence applications “as soon as practicable” and prioritises cases “of particular strategic, economic or administrative importance.”

Indotek says it did not participate in the acquisition talks at the bidding of Orbán’s circle. “No political player had anything to do with the transaction on the Hungarian side,” the company tells the FT in an emailed statement. “We make our business decisions on a market basis, not a political… or kinship basis.”

Indotek had felt a lack of support from Croatia’s political elite, the statement continues, adding the company may reconsider the project if that changes. “We did not want to appear on a market where we are not welcome.”

A giant exits

Amid the staccato of sanctions in the early days of the war, Sberbank was hit with more restrictions, limiting its options on Fortenova.

As western companies left Russia or closed their Moscow operations, often at a cost, Russian companies were also forced to abandon European assets, even if that meant accepting a reduced price.

Potential EU buyers of the retailer were given until the end of October to make any deal with Russian lenders. A group of Croatian private pension funds stepped up to take an interest in one of their largest contributing companies.

They formed an alliance of four funds and submitted a non-binding offer for the Fortenova stake at the deep discount of €500mn.

For Sberbank it was exactly half a billion more than nothing. The pension funds completed a super-rushed due diligence process and collected all licences just in time before the deadline.

The deal was in arm’s reach — but then the largest fund in the alliance, the AZ Fund, walked away.

The AZ Fund is majority owned by one of the world’s largest insurers, Germany’s Allianz, in partnership with Italy’s UniCredit. Without AZ, the other partners would have insufficient funds and be too exposed to a single oversized asset under Croatian law.

As the funds ran the deal past their supervisory boards on October 24, Peruško got a phone call. He was told that the Allianz boss of central-eastern Europe, Petros Papanikolau, insisted the deal clear internal compliance. He was concerned that money would be flowing to Russia.

As AZ deliberated, Fortenova and the Croatian government urged Allianz to approve the deal. In the end, the fund’s supervisory board put it to a vote. One member approved, saying advantages outweighed risks, and another abstained. But two relatively fresh appointees of the board, including its chair, voted no. The deal was dead.

“They had everything,” says one person with an interest in the deal’s success. “Still they killed the deal. The biggest mistake ever.” Others described in various terms the “total shock” they were in.

The rationale behind the decision remains unknown to the Croatians, even among the highest-ranking officials in government and the corporate world. But plenty have suspicions. “The key is not in Zagreb,” one person close to the deal says. “It is in Munich and Moscow.”

“I think it’s a German-Russian story,” a Croatian executive adds. “Allianz has strict compliance and they were afraid to do business with Russians. That was the reason, I give that an 80 per cent chance. The Russians just can’t get the money.”

People who know the Allianz rationale told the FT the insurer was put off by the effective violation of the spirit of the sanctions as half a billion euros would be flowing to Russia’s largest bank — even if the transaction cleared the sanctions on paper.

The German giant resented what it saw as persistent pressure from the Croatian government, including the launch of an investigation into Allianz’s withdrawal by Croatian market watchdog Hanfa. The regulator declined to comment while the probe is ongoing.

In a statement, Allianz said of the deal: “Its risk and return profile was wholly unsuitable for pensioners . . . Its financial structure presented potential compliance risks that [we] considered unacceptable. Acting as a fiduciary, the [board] took the independent decision, [which] did not prevent other investors from investing in the deal.”

In the end, the departure of Allianz opened the door for other investors. But they turned out to be precisely the kind of dubious ones that the government sought to prevent.

Enter the sheikh

With only days remaining until the EU deadline, there were few potential buyers left on the table. But it soon turned out that Sberbank had prepared a last-minute alternative.

A few days later a new Emirati investor, a little-known sheikh, bought the bank’s Fortenova stake. With claims of a great fortune and close ties to the UAE’s royal family, Saif Alketbi said he was looking to invest for himself.

If the departure of Allianz was a shock, Alketbi’s appearance threw the Croats into a tailspin. He had never called anyone from the company, much less visited it. Absolutely no due diligence was done on site. From what they could tell in Zagreb, Alketbi had never even set foot in Croatia.

Before long Alketbi’s connections became clearer. In a statement he said he had co-operated with a Croatian businessman named Miodrag Borojević and lined up a €400mn loan from Russia’s Gazprombank should the pension fund deal fall through. When it did, Alketbi moved quickly.

We have given every opportunity to the Croatian authorities to make a deal

So quickly in fact that he left a messy trail. The vehicle he chose, a Russian company called Aivazovsky Invest, was not in his name when he signed the deal. But Aivazovsky and Borojević did have links to a well-known Croatian, a man named Krešimir Filipović.

Filipović has elite connections in Russia. He rose to prominence at Velesstroy, a company that manufactures pipelines for some of the largest energy industry players in Russia. He eventually became majority owner, but is no longer on the company’s official records. He was also close to the deputy mayor of Moscow, Anastasiya Rakova, a prominent member of the Russian political elite.

Filipović had long been interested in buying Fortenova himself, says a person with knowledge of the matter. Croatian by birth but with a career that ties him to Russia, Filipović wanted to have a prominent footprint in his home country, this person says. And the price his associates agreed to pay — €400mn — was a whopping two-thirds off.

Filipović and Velesstroy did not respond to requests for comment. Attempts to seek comment from Alketbi were unsuccessful.

Sberbank, for its part, considered the sale done and dusted. Its chief executive, Herman Gref, boasted about his foresight at a Moscow business forum in November.

“We have given every opportunity to the Croatian authorities to make a deal,” Gref said, according to a report by the Russian web site Frank Media. “The pool of investors the Croatian government had collected fell through. And we went for option B, which we had.”

But the deal had in fact come together without the involvement of management at Fortenova or Sberbank. Instead, two former Russian board members of Fortenova played an instrumental part in forming the alternative deal, according to several people. Gref was privately exasperated, one says. “[Fortenova] has brought him nothing but trouble and he wants rid of it.” Attempts to reach the two board members were not successful.

The Croatian government wasted no time blocking the deal, as they suspected a possible sanctions infraction if a sale happened without their approval.

In mid-December, the European Council extended sanctions to SBK ART, the vehicle for Sberbank’s ownership in Fortenova. Filipović and Borojević — the partner of Alketbi, the UAE investor — were also sanctioned.

“Sberbank retains effective control over [the Fortenova stake despite] the purported transfer of its shares to a businessman in the United Arab Emirates,” the Council said.

As a financial supporter of the Russian government, this vehicle was now sanctioned and blockaded in the EU. Fortenova also ensured the stake’s owners could not participate in company decisions, protecting the group from Russian ploys.

Whether it liked it or not, in the EU’s official view, Sberbank was now effectively the silent partner.

‘No viable options’

To this day, that still leaves Fortenova with a Russian owner, which repels investors and keeps the company’s finances unresolved.

Time is tight: Fortenova must refinance about €1bn in debt by September. But creditors won’t discuss loans because of the Russian baggage, a situation which could push the group into a second default in less than a decade.

It is not only the question of money, but protection against zero value

Fortenova’s management is determined to take every last opportunity to salvage the situation. It still battles Alketbi, who has challenged several recent moves in court, claiming ownership, despite sanctions and previous court decisions denying him that right. A recent court hearing in Amsterdam marked the first time Fortenova’s top management saw Alketbi face to face — albeit via video link.

In April this year, Fortenova’s managers took the bold move of calling on investors around the world to acquire the entire company in a complex deal that would see the Russian stake removed, its price put in escrow until sanctions are lifted, and the company free to move on. Otherwise, it said, “there are currently no viable options available to dispose of the equity held by . . . Sberbank.”

Yet a solution remains out of reach. Repelled by the Russian component, no investors submitted an offer by a June 3 deadline. Fortenova then approached its existing non-Russian investors — essentially OpenPass, the company of Croatian tycoon Pavao Vujnovac, which holds 29 per cent — asking whether they would buy the Russian stake.

Vujnovac and OpenPass could not be reached for comment. But the longer they hold out, the cheaper the stake will become as the value of the whole company diminishes.

“It is not only the question of money, but protection against zero value,” Peruško says. “Every day we get closer to default elevates the urgency on the shareholders’ side to come up with an offer . . . We are in a race against time.”

Additional reporting by Max Seddon in Riga, Olaf Storbeck in Frankfurt, Stephen Morris in London and Eleni Varvitsioti in Athens