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Saving INA from bankruptcy

Saving INA from bankruptcy

Shortly after the onset of the 2008 economic crisis, INA was on the brink of bankruptcy. Between 2009 and 2010, MOL provided INA with approximately USD 460 million (EUR 330 million) in funding. This, combined with the ongoing support of the Croatian Government successfully stabilized INA’s financial position.

Croatia was one of the European countries worst hit by the economic crisis. At the height of the downturn, INA’s financial situation deteriorated rapidly due to a combination of external and internal challenges.

First, national and regional energy demand dropped dramatically and led to a reduction of INA’s revenues. In Croatia, 2012 diesel demand remained 10% down compared to 2008 levels, whilst market demand for gasoline was still 14% down. Fuel oil demand practically vanished from the market. Overall, the entire oil derivatives market shrank by 28% due to the economic crisis.

To put things in perspective, in that time the overall demand in Croatia, Slovenia and Bosnia decreased by an amount equivalent to 70% of Sisak refinery’s nominal capacity.

Second, the unfavorable regulatory environment due to regulated below-market rate gas prices saw INA generate losses of HRK 2.5 billion (~EUR 336 million) altogether in 2007 and 2008.

Third, INA was no longer able to fully finance all of its investment programs because international financial markets had ground to a standstill, and external loan financing was practically halted for INA. In the years preceding the crisis, INA had launched into an aggressive investment program supposed to have peaked in 2009-10. As an illustration, between 2006 and 2010, INA’s investments reached more than 160% of its operating cash-flow on average, meaning that the company was not in a position to finance its investment programs from its operating cash-flow and had to borrow from additional external financial sources (e.g. loans, credits).

As a result, INA reached the brink of bankruptcy exactly at the time of the peak of its investment programs. From 2008 to 2010, the company faced huge challenges such as defaulting to meet its obligations towards banks (possibility of defaulting on its loans), suppliers and host governments like Syria, Egypt and Angola. The finalization of key ongoing investment projects such as the biggest international oil and gas field development program in the Company’s history in Syria, the further development of the strategically important Northern Adriatic fields as well as refinery modernization were in jeopardy. INA’s future as a critical energy provider in the region was at risk.

The two major shareholders’ support was needed immediately and for mid-term (2-3 years), in order to avoid bankruptcy and to improve the liquidity. This included the following:

  • Unbundling and sale of INA’s gas storage and trading business;
  • Delayed payment of sizable tax liability: INA owed more than HRK 1.5 billion (~EUR 201 million) to the Croatian state at that time, after having had to delay its sizeable tax liability by 1-2 months.
  • MOL’s loan of approximately USD 460 million (EUR 330 million) provided to INA during 2009 and 2010, at a time when the international financial markets were frozen. INA partially used this loan to cover employee’ salaries and oil purchases, and partially to repay debts towards the state.

Thanks to MOL’s loans, INA was able to cover part of its operating expenses and pay its overdue tax liabilities to the Croatian Government. All overdue taxes were fully settled by September 2010.

The support of MOL and of the Croatian Government successfully stabilized INA’s financial position.

Between 2010 and 2018 INA lowered its net gearing from the level of 43.72% to 12.2%, while the net debt was cut down from HRK 10 billion to 1.6 billion.