Obligation Croatica 3% ( XS1117298916 ) en EUR

Croatica

100 % ▲

Croatie

XS1117298916 ( en EUR )

3% par an ( paiement annuel )

10/03/2025 - Obligation échue

Prospectus brochure de l'obligation Croatia XS1117298916 en EUR 3%, échue

100 000 EUR

1 500 000 000 EUR

La Croatie est un pays d'Europe du Sud-Est, membre de l'Union européenne, bordé par la mer Adriatique, connu pour ses paysages côtiers pittoresques, ses îles, son riche patrimoine historique et culturel, et sa gastronomie méditerranéenne.

L'obligation croate XS1117298916, émise par la Croatie en euros (EUR) pour un montant total de 1 500 000 000 EUR, offre un taux d'intérêt de 3% avec une échéance fixée au 10 mars 2025, un prix actuel de marché de 100%, une taille minimale d'achat de 100 000 EUR et une fréquence de paiement annuelle.

OFFERING CIRCULAR

REPUBLIC OF CROATIA
1,500,000,000
3.00 per cent. Notes due 2025
Issue price: 97.845 per cent.
The issue price of the 1,500,000,000 3.00 per cent. Fixed Rate Notes due 2025 (the "Notes") issued by the Republic of Croatia (the
"Issuer", the "Republic" or "Croatia"), will be 97.845 per cent. of their principal amount. The Notes will mature on 11 March
2025 at their principal amount.
The Notes will be in registered form in denominations of 100,000 and integral multiples of 1,000 in excess thereof. Interest on
the Notes will accrue at the rate of 3.00 per cent. per annum from and including 11 March 2015 and will be payable in Euro
annually in arrear on 11 March in each year, commencing on 11 March 2016. Payments on the Notes will be made without
withholding or deduction for or on account of taxes imposed by the Issuer except to the extent described under "Terms and
Conditions of the Notes -- Taxation".
This Offering Circular neither constitutes a prospectus pursuant to Part II of the Luxembourg law on prospectuses for securities (loi
relative aux prospectus pour valeurs mobiliéres) dated 10 July 2005 (the "Luxembourg Act") which implements Directive
2003/71/EC as amended (which includes the amendments made by Directive 2010/73/EU to the extent that such amendments have
been implemented in a relevant Member State of the European Economic Area) (the "Prospectus Directive") nor a simplified
prospectus pursuant to Part III of the Luxembourg Act. Accordingly, this Offering Circular does not purport to meet the format and
the disclosure requirements of the Prospectus Directive and Commission Regulation (EC) No. 809/2004 implementing the
Prospectus Directive, and it has not been, and will not be, submitted for approval to any competent authority within the meaning of
the Prospectus Directive and in particular the Supervisory Commission of the Financial Sector (Commission de Surveillance du
Secteur Financier), in its capacity as competent authority under the Luxembourg Act.
The Issuer is rated Ba1 by Moody's Investors Service, Inc. ("Moody's"), BB by Standard & Poor's Credit Market Services Europe
Ltd. ("S&P"), and the Issuer has a long term foreign currency issuer default rating of BB by Fitch Ratings Ltd. ("Fitch"). The Notes
will be rated Ba1 by Moody's, BB by S&P, and BB by Fitch. A rating is not a recommendation to buy, sell or hold securities and
may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. As at the date of this Offering
Circular, S&P and Fitch are established in the European Union and is registered under Regulation (EU) No 1060/2009 (as amended)
(the "CRA Regulation"). Moody's is not established in the EEA but the rating it has given to the Notes is endorsed by Moody's
Investors Service, Ltd, which is established in the EEA and registered under the CRA Regulation. As such, each of the rating
agencies is included in the list of credit rating agencies published by the European Securities and Markets Authority ("ESMA") on
its website in accordance with such Regulation. In general, European regulated investors are restricted under the CRA Regulation
from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and
registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions
that apply in certain circumstances whilst the registration application is pending. Such general restriction will also apply in the case
of credit ratings issued by non EU credit rating agencies, unless the relevant credit ratings are endorsed by an EU registered credit
rating agency or the relevant non EU rating agency is certified in accordance with the CRA Regulation (and such endorsement
action or certification, as the case may be, has not been withdrawn or suspended). The list of registered and certified rating agencies
published by ESMA on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant
rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant
rating agency and the publication of the updated ESMA list. Certain information with respect to the credit rating agencies and
ratings is set out in the sections entitled "There can be no assurance that Croatia's credit ratings will not change" and "Credit
Ratings may not reflect all risks" of this Offering Circular.
The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities
Act"), or any state securities law, and may not be offered or sold within the United States except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the Securities Act.
The Notes will initially be represented by a global certificate (the "Global Certificate"), in registered form, without interest
coupons attached and will be registered in the name of a nominee of a common depositary for Clearstream Banking, société
anonyme ("Clearstream, Luxembourg") and Euroclear Bank S.A./N.V. ("Euroclear"), on or about 11 March 2015 (the "Closing
Date").
An investment in the Notes involves certain risks. See "Risk Factors" for a discussion of certain factors that should be considered
in connection with an investment in the Notes.
Joint Lead Managers
BARCLAYS
ERSTE GROUP
J.P. MORGAN
ZAGREBACKA BANKA
9 March 2015
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THE REPUBLIC OF CROATIA

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The Issuer accepts responsibility for the information contained in this Offering Circular. To the best of the
knowledge of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained
in this Offering Circular is in accordance with the facts and does not omit anything likely to affect the import of such
information. The Issuer, having made all reasonable enquiries, confirms that this Offering Circular contains all
information with respect to the Issuer and the Notes which is material in the context of the issue and offering of the
Notes, that the information contained in this Offering Circular is true and accurate in every material respect and is
not misleading, that the opinions and intentions expressed in this Offering Circular are honestly held and that there
are no other facts the omission of which makes misleading any statement herein, whether of fact or opinion.
No person has been authorised in connection with the offering of the Notes to give any information or make any
representation regarding the Issuer or the Notes other than as contained in this Offering Circular. Any such
representation or information should not be relied upon as having been authorised by the Issuer or any agency
thereof or the Joint Lead Managers (as defined under "Subscription and Sale"). Neither the delivery of this Offering
Circular nor any sales made in connection with the issue of the Notes shall, under any circumstances, constitute a
representation that there has been no change in the affairs of the Issuer since the date hereof.
The Joint Lead Managers make no representation or warranty, express or implied, as to the accuracy or
completeness of the information in this Offering Circular. Each person receiving this Offering Circular
acknowledges that such person has not relied on any Joint Lead Manager or any person affiliated with any Joint
Lead Manager in connection with its investigation of the accuracy of such information or its investment decision.
Each person contemplating making an investment in the Notes must make its own investigation and analysis of the
creditworthiness of the Issuer and its own determination of the suitability of any such investment, with particular
reference to its own investment objectives and experience, and any other factors which may be relevant to it in
connection with such investment.
This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Issuer or any agency
thereof or any Joint Lead Manager to subscribe or purchase, any of the Notes. The distribution of this Offering
Circular and the offering of the Notes in certain jurisdictions may be restricted by law. Persons into whose
possession this Offering Circular comes are required by the Joint Lead Managers to inform themselves about and to
observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and
distribution of this Offering Circular, see "Subscription and Sale".
In this Offering Circular, all references to "HRK" and "kuna" are to the lawful currency for the time being of the
Issuer, all references to "", "EUR", "euro" and "Euro" are to the currency introduced at the start of the third stage
of European economic and monetary union pursuant to the Treaty on the Functioning of the European Union, all
references to "U.S. dollars", "US$" and "U.S.$" are to the lawful currency for the time being of the United States of
America and all references to "CHF" or "Swiss franc" are to Swiss Francs. Certain amounts which appear in this
Offering Circular have been subject to rounding adjustments; accordingly, figures shown as totals may not be an
arithmetic aggregation of the figures which precede them.
IN CONNECTION WITH THE ISSUE OF THE NOTES, J.P. MORGAN SECURITIES PLC AS
STABILISATION MANAGER (THE "STABILISATION MANAGER") (OR PERSONS ACTING ON
BEHALF OF THE STABILISATION MANAGER) MAY OVER ALLOT NOTES OR EFFECT
TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A
LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO
ASSURANCE THAT THE STABILISATION MANAGER (OR PERSONS ACTING ON BEHALF OF THE
STABILISATION MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION
ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF
THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY
TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE
OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY
STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE
STABILISATION MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISATION
MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.
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EXCHANGE RATES
The following table sets forth, for the periods indicated, the average monthly rates published by the
Hrvatska narodna banka, expressed as kuna per Euro.

2010
2011
2012
2013
2014
2015
January .......................................
7,290819 7,396420 7,546707 7,567746 7,629820 7,679826
February .....................................
7,304744 7,410873 7,579384 7,582399 7,654972 -
March .........................................
7,260644 7,393749 7,539590 7,585782 7,654440 -
April ............................................
7,258114 7,362212 7,494357 7,602485 7,627459 -
May ............................................
7,257505 7,391226 7,528940 7,568123 7,593665 -
June ............................................
7,229388 7,412196 7,546585 7,500346 7,573554 -
July ............................................
7,211539 7,419738 7,494496 7,494112 7,599809 -
August ........................................
7,246101 7,454965 7,486777 7,521353 7,626000 -
September ..................................
7,282934 7,486844 7,426569 7,587204 7,618519 -
October .......................................
7,320596 7,483324 7,500421 7,614419 7,650459 -
November ..................................
7,373159 7,487735 7,536449 7,627680 7,663895 -
December ...................................
7,392766 7,507179 7,529460 7,633202 7,667075 -
_______________
Source: Croatian National Bank and Hrvatska narodna banka
The following table sets forth, for the periods indicated, the period end, average, high and low official
mid-point rates published by the Hrvatska narodna banka, expressed as kuna per U.S. dollar.

Period End
Average(1)
High
Low
2008 ..................................................................................................
5,1555040 4,9344170 5,8017760 4,5227520
2009 ..................................................................................................
5,0893000 5,2803700 5,9411230 4,8038250
2010 ..................................................................................................
5,5682520 5,5000150 6,0889220 5,0096630
2011 ..................................................................................................
5,8199400 5,3435080 5,8252360 4,9474260
2012 ..................................................................................................
5,7267940 5,8508610 6,1949390 5,6154240
2013 ..................................................................................................
5,5490000 5,7058830 5,9436420 5,5133750
2014 ..................................................................................................
6,3021070 5,7493220 6,3021070 5,4404300
January 2013 ....................................................................................
5,5942940 5,7014440 5,8090950 5,5942940
February 2013 ..................................................................................
5,7958900 5,6648250 5,7958900 5,5546880
March 2013 .......................................................................................
5,9188070 5,8467740 5,9315970 5,7833890
April 2013 .........................................................................................
5,8118050 5,8450170 5,9436420 5,7799920
May 2013 ..........................................................................................
5,8611770 5,8284590 5,8816300 5,7565700
June 2013 .......................................................................................... 5,7063440 5,6871730 5,8228840 5,5787300
July 2013 ...........................................................................................
5,6452150 5,7336950 5,8693050 5,6377910
August 2013 ......................................................................................
5,7079420 5,6475670 5,7079420 5,6019000
September 2013 ................................................................................
5,6423970 5,6909630 5,7765290
5,6122070
October 2013 ....................................................................................
5,5380910 5,5857140 5,6396820 5,5133750
November 2013 ................................................................................
5,6080070 5,6515230 5,6877480 5,5735280
December 2013 .................................................................................
5,5490000 5,5754080 5,6361720
5,5292710
January 2014 ....................................................................................
5,6191960 5,5970050 5,6377830 5,5418590
February 2014 ..................................................................................
5,6092200 5,6093370 5,6656560 5,5701950
March 2014 .......................................................................................
5,5758240 5,5382850 5,5759920 5,4872050
April 2014 .........................................................................................
5,4852430 5,5221420 5,5764590 5,4852430
May 2014 ..........................................................................................
5,5747700 5,5241600 5,5870030 5,4404300
June 2014 .......................................................................................... 5,5622770 5,5747600 5,6026880 5,5557200
July 2014 ...........................................................................................
5,6980330 5,6072840 5,6980330 5,5292760
August 2014 ......................................................................................
5,7868990 5,7242640 5,7868990 5,6854980
September 2014 ................................................................................
6,0153550 5,8895560 6,0153550
5,7868990
October 2014 ....................................................................................
6,0882110 6,0374620 6,0882110 5,9787360
November 2014 ................................................................................
6,1636500 6,1413720 6,1790990 6,0880500
December 2014 .................................................................................
6,3021070 6,2123580 6,3021070
6,1391830
January 2015 .....................................................................................
6,7777170 6,5954280 6,8599180 6,2995290
_______________
Source: Hrvatska narodna banka
(1) Average of daily rates.

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CONTENTS

Page
RISK FACTORS .......................................................................................................................................... 1
TERMS AND CONDITIONS OF THE NOTES ....................................................................................... 13
USE OF PROCEEDS ................................................................................................................................. 32
SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM ............... 33
OVERVIEW OF THE REPUBLIC OF CROATIA ................................................................................... 36
THE ECONOMY ....................................................................................................................................... 42
FOREIGN TRADE AND INTERNATIONAL BALANCE OF PAYMENTS ......................................... 64
MONETARY DEVELOPMENTS, INTERNATIONAL RESERVES AND FINANCIAL SYSTEM ..... 79
PUBLIC FINANCE ................................................................................................................................. 107
PUBLIC DEBT ........................................................................................................................................ 126
TAXATION ............................................................................................................................................. 133
SUBSCRIPTION AND SALE ................................................................................................................. 135
GENERAL INFORMATION .................................................................................................................. 137
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RISK FACTORS
Investment in the Notes involves a high degree of risk. Prospective investors should carefully
consider the following risk factors, together with the other information set out in this Offering
Circular, before making a decision to invest in the Notes and should understand that the risks set
forth below could, individually or in the aggregate, have a material adverse effect on Croatia's
capacity to repay principal and make payments of interest on the Notes or otherwise fulfil its
obligations under the Notes. Most of these factors are contingencies which may or may not occur
and Croatia is not in a position to express a view on the likelihood of any such contingency
occurring. Additional risks and uncertainties not currently known to Croatia or that Croatia
currently deems to be immaterial may also materially affect Croatia's economy and its ability to
fulfil its obligations under the Notes. In any such case, investors may lose all or part of their
investment in the Notes. Words and expressions defined in "Terms and Conditions of the Notes" or
elsewhere in this Offering Circular have the same meanings in this section.
Risk Factors Relating to Croatia
Having recently acceded to the EU on the back of a raft of legal, economic, financial and other
reforms and policies, Croatia is undergoing a period of transition which may adversely affect the
Croatian economy and Croatia's ability to repay principal and make payments of interest on the Notes
On 1 July 2013, Croatia joined the EU and became its 28th member state. To facilitate this, it was
necessary for the Government of Croatia (the "Government") to introduce a number of structural
measures in 2012 and 2013 with the aim of strengthening the quality of public finances and bringing
political, economic and judicial structures in line with EU requirements. In light of these large-scale
sweeping measures, Croatia is in a transitional period and may experience difficulty during this period as
its structures integrate into the EU.
Croatia has also undergone and continues to undergo changes in legislation due to its EU accession. As a
result of these changes, there is a lack of an established practice under many securities, tax and other
regulatory regimes in Croatia and new regulations may be subject to contradictory, ambiguous or
changing interpretations by the Croatian regulatory authorities. Consequently, companies operating in
this region may face tax, securities and other regulatory compliance-related risks that may be less
predictable than in countries with more stable regulatory systems. As a result of EU membership, Croatia
may be eligible to receive financial assistance from EU structural funds pursuant to the EU Cohesion
Policy. However, there is no guarantee that Croatia will meet the criteria to receive disbursements under
these funds or that such funds would be available or the timing of any such disbursements (see "The
Economy -- Economic Policy -- EU Structural Funds"). Access to EU structural funds will require co-
financing by Croatia, which may be challenging in light of Croatia's fiscal and budgetary situation, and
the Excessive Deficit Procedure imposed (see below). Furthermore, as an EU Member State, Croatia
incurs additional costs related to its EU membership, including its contribution to the EU budget, which
amounts to EUR 462 million for the 2015 fiscal year, which may place further strains on Croatia's fiscal
condition.
Further, the Government has encountered resistance in the implementation of these reforms from trade
unions. During 2013, hospital workers in Croatia went on strike in September, and staff of the state-
owned Croatia Airlines d.d. engaged in an eight-day strike in May, in protest over cuts to salary, benefits
and layoffs. Most recently, in 2014, school workers went on strike in February and April and staff of the
state-owned HZ Cargo d.o.o. engaged in a three-day strike during April. In addition, Croatia's
implementation of the Excessive Deficit Procedure (as defined below) as a result of its budget deficit
exceeding the reference value of 3 per cent. of GDP, could result in additional resistance, labour
disruptions or social unrest. There can be no assurance that implementation of these or additional reforms
will not result in further prolonged labour unrest or disruptions, which could have an adverse effect on
Croatia's economy and ability to repay its obligations on the Notes.
Following accession to the EU, Croatia's trade policy is now in accordance with the rules of the EU
Treaty. The EU has a common trade policy in relation to non-EU countries which involves, among other
things, a common external tariff and common trade agreements with non-EU Member States. As part of
the EU internal market, Croatia's economy is exposed to increased competition with other Member States.
In addition, as part of its EU accession, Croatia also exited from the Central European Free Trade
Agreement ("CEFTA") - a trade agreement between the non-EU countries in Southeast Europe which
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includes Serbia, Macedonia, Montenegro, Bosnia and Herzegovina, Kosovo, Albania, and Moldova.
Prior to Croatia's exit from CEFTA, CEFTA countries accounted for a significant portion of Croatia's
exports, particularly in the agriculture and food industries. Croatia's trade with its non-EU trade partners
will now rely solely on each country's respective Stabilization and Association Agreement ("SSA"),
which is each such country's bilateral trade agreement with the EU. Although the European Commission
has conducted negotiations with the CEFTA countries on changing their SSAs to account for Croatia's
EU accession, many Croatian exports may still face new or higher import tariffs and quotas in the CEFTA
countries, which could have adverse effects on sectors of the economy that are unable to compete.
Further, following accession to the EU, Croatia's trade with CEFTA countries declined, specifically in
agro-food exports. In addition, as a result of EU accession Croatia is also required to significantly reduce
the level of domestic subsidies to the agriculture sector. (see "The Economy -- Government Subsidies").
As a member state of the EU, Croatia will be eligible to adopt the euro once it fulfils the necessary
conditions, and will seek to enter the Exchange Rate Mechanism ("ERM II"), although the timing for this
process remains uncertain and is unlikely to be in the short to medium term. Under ERM II, the exchange
rate of a non-euro area Member State is fixed against the euro and is only allowed to fluctuate within set
limits. Entry into ERM II is based on an agreement between the ministers and central bank governors of
the non-euro area Member State and the euro-area Member States, and the European Central Bank. Entry
into ERM II will be a step towards the full adoption of the euro in Croatia, in line with Croatia's
commitment pursuant to the Accession Treaty. Croatia's date of entry into ERM II and, subsequently,
into the eurozone, will primarily depend on Croatia's macroeconomic indicators, i.e. its ability to fulfil a
set of membership criteria which are more stringent than those applied to previous candidates. The policy
measures required to meet such criteria, Croatia's entry into ERM II and adoption of the euro could each
result in adverse macroeconomic effects on Croatia's economy and lead to lower rates of, or negative,
economic growth.
Croatia is subject to the Excessive Deficit Procedure and implementation of deficit reduction measures
may adversely affect Croatia's economy
Under the Treaty on European Union of February 1992 (the "Maastricht Treaty"), implementing
regulations and the Stability and Growth Pact (the "Pact") among EU Member States, Member States are
required to pursue a medium-term objective of ensuring the long-term sustainability of public finances
and minimising the risk of their budget deficit exceeding the reference value of 3 per cent. of GDP. A
Member State whose general budget deficit exceeds the reference value of 3 per cent. of its GDP, or
whose ratio of Government debt to GDP exceeds the reference value of 60 per cent., becomes subject to
the excessive deficit procedure (the "Excessive Deficit Procedure"). The Excessive Deficit Procedure
provides that the Economic and Finance Affairs Council, a Council composed of Economics and Finance
Ministers of the Member States (the "Ecofin Council"), decides whether an excessive deficit has been
incurred. If it concludes that there is an excessive deficit, the Ecofin Council, based on recommendations
by the European Commission, suggests corrective measures aimed at a deficit reduction and then reviews
the corrective measures taken by the Member State. If it determines that such corrective measures are not
adequately implemented, the Maastricht Treaty and the Pact provide for a wide range of remedies,
including the imposition of annual financial penalties. On 28 January 2014, the Council of the European
Union opened an excessive deficit procedure for Croatia, adopting a decision on the existence of an
excessive Government deficit as well as recommendations setting out measures to be taken to correct the
deficit by 2016. Croatia's budget deficit is currently above 3 per cent. of GDP and Croatia believes that it
may correct such deficit by 2017. The debt to GDP ratio is currently 80.5 per cent. and is expected to
increase and stabilise only in 2017, although there can be no assurance at what level it will peak at and by
when. Efforts to reduce taxation in order to stimulate growth and encourage entrepreneurs may hinder
efforts to reduce the deficit. Separately, privitisations and/or a reduction in public spending/wages may
prove unpopular and be difficult to implement. As such, this may result in the budget deficit exceeding 3
per cent. of GDP for longer than expected and implementation of the agreed deficit reduction measures
may have an adverse effect on Croatia's economy (for further information see "Public Finance" and "The
Economy -- Excessive Deficit Procedure").
Croatia's economy remains vulnerable to external shocks which could have an adverse effect on
Croatia's economic growth and its ability to service its public debt
Croatia's economy remains vulnerable to external shocks, including those stemming from the global
financial and economic crisis that started in 2008 and the recent political turmoil in certain emerging
markets as well as the continuing uncertainty regarding the EU Member States, including renewed
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uncertainty regarding Greece. The global financial and economic crisis negatively affected the Croatian
economy.
After Croatian EU accession, on July 1, 2013, Croatia was obliged to leave CEFTA, but obtained access
to concessions negotiated in the EU's preferential trade agreements with third countries. Croatia's
economy remains vulnerable to any trade disruptions with its main EU trading partners, namely Austria,
Germany and Italy.
A significant decline in the economic growth of any of Croatia's major trading partners, such as the EU
countries, could, inter alia, have a material adverse impact on Croatia's balance of trade and adversely
affect Croatia's economic growth.
In addition, the recent hostilities between Russia and Ukraine have been strongly opposed by the EU and
the United States. The hostilities have prompted the EU and the United States to impose trade restrictions
and sanctions on certain persons and entities affiliated with Russia as well as on certain key sectors of the
Russian economy. The restriction on EU exports of agricultural and food products to Russia have to date
had a limited effect on Croatia. Nonetheless, the potential repercussions surrounding the situation are
unknown. The emergence of new or escalated tensions in the region, or the imposition of further
economic or other sanctions in response to such tensions, which may include targeted sanctions against
certain industries, could negatively affect other economies in the region and the Eurozone in general.
Although Ukraine is not a material trading partner for Croatia, any contingent and ongoing escalation of
the current tension in Ukraine may in turn have serious economic and geopolitical consequences for
Europe as a whole and indirectly impact Croatia through its trading partners Austria and Germany and
impact the Croatian economy.
Croatia continues to face a number of economic challenges including low worker participation,
deleveraging of the private sector, a decline in personal consumption and a lack of growth. There can be
no assurance that Croatia will return to the growth pattern experienced in the period from 2001 to 2008
given that it relied heavily on substantial inflows of foreign capital during this period. Even if the global
economy recovers in the future, the recovery may not be sustained and may reverse. This could have a
material adverse effect on Croatia's capacity to repay principal and make payments of interest on the
Notes and on Croatia's credit rating.
Depreciation in the kuna may adversely affect the Croatian economic and financial condition
A significant portion of Croatia's public external debt and domestic debt is denominated in or linked to
foreign currencies. Foreign-currency and foreign currency-linked debt accounted for 75.9 per cent. of
general Government debt as at 31 December 2012 and 76.7 per cent. as at 31 December 2013. In
addition, substantially all Government guarantees are denominated in or linked to foreign currency. In
the event of foreign currency fluctuations, and a devaluation of the kuna relative to the U.S. dollar or the
euro, the negative impact on the service obligations in respect of the debt denominated in foreign
currencies will not be completely offset by the positive impact on the service obligations in respect of
debt denominated in kuna. Any significant devaluation of the kuna may have an adverse effect on the
Republic's ability to repay its debt denominated in foreign currencies, including the amounts due under
the Notes.
In addition, as at 31 December 2013, 86.9 per cent. of total Central Government loans are denominated in
or linked to foreign currency. Only a small fraction of this debt is hedged. From 2012 onwards, the share
of the kuna component in Croatia's bank loan portfolio has been increasing. Despite the fact that foreign
currency deposits now account for approximately 67.5 per cent. of all deposits (82.7 per cent. of time and
saving deposits) and that large foreign currency deposits by households reduce currency mismatches at
the aggregate level, this does not eliminate macro-level mismatches and there are likely to be mismatches
at the individual level between borrowers and depositors as well. Since 1 January 2013 the Hrvatska
narodna banka ("HNB") has intervened in the foreign currency market five times as part of its policy of
pursuing a stable euro/kuna exchange rate. The devaluation of the kuna against foreign currencies may
negatively affect the capacity of corporate and household borrowers to repay their debt and as a result
adversely affect the financial and economic condition of Croatia. See "Monetary Developments,
International Reserves and Financial System -- Monetary Policy and Instruments".
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The appreciation of the Swiss franc and the measures implemented by Croatian authorities to deal with
this may have a negative impact on the Banking sector
A significant portion of the housing loans advanced by the Croatian banking sector (which according to
supervisory data are around 36.5 per cent. of the total housing loans and around 7.4 per cent. of all loans
advanced by the Croatian banking sector at 30 September 2014) are indexed to the Swiss franc. As at 30
September 2014, Swiss franc linked housing loans aggregated to approximately HRK 20.5 billion. These
were historically adversely affected by the appreciation of the Swiss franc against the kuna by 17.2 per.
cent in 2010, 4.3 per cent. in 2011 and 0.8 per cent. in 2012. With the Swiss National Bank's decision on
15 January 2015 to abolish the Swiss franc-euro peg, the Swiss franc appreciated against the kuna by
around 20 per cent. on a single day. As the franc is now unpegged, the risk faced by such loans is
heightened. Any further appreciation of the Swiss franc against the kuna may have an adverse impact on
the economy.
As a result, the Croatian parliament and HNB have taken and are considering steps to address the impact
of this appreciation on the Croatian banking sector, see "Monetary Developments, International Reserves
and Financial System -- Loan Exposure". As the purpose of these steps is to pass the risk of the Swiss
franc appreciation to the banking sector, Croatian banks' profitability and asset quality is likely to be
adversely affected.
The further proliferation of the euro in the Croatian economy may adversely affect the HNB's ability
to implement its monetary policies
In recent years, the role of the euro in the Croatian economy and circulation of the euro in Croatia
substantially increased as a result of sizeable euro capital inflows from abroad, including from persons
working abroad who send money to their families in Croatia; the tourism industry, in particular the
population's willingness to accept euro from tourists; and the fact that a majority of corporate and
household loans are euro-denominated or euro-indexed. As the Government's domestic monetary policy
mostly impacts the kuna and has limited impact on other currencies including the euro, the further
proliferation of the euro in the Croatian economy and widespread use of euro by the Croatian population
may undermine the ability of the HNB to implement its monetary policies. Similarly, the policies of the
European Central Bank affecting the euro may indirectly impact the Croatian economy. Any limitations
on the ability of the HNB to implement its monetary policies may have an adverse effect on the Croatian
economy and thus on the ability of Croatia to repay principal and make payments of interest on the Notes.
Croatia became a member state of the EU on 1 July 2013 and is committed to entering the ERM II and
adopting the euro, subject to certain criteria being met. The policy measures required to meet such
criteria, Croatia's entry into ERM II and adoption of the euro could each result in adverse macroeconomic
effects on Croatia's economy and lead to lower rates of economic growth.
The current account balance may deteriorate
Croatia's current account deficit has declined gradually since 2008 and recorded small surpluses in each
of 2012, 2013 and 2014. Croatia's current account balance is significantly affected by its trade balance
and any future negative changes in the trade balance and the current account balance could have an
adverse effect on the Croatian economy and thus on the ability of Croatia to repay principal and make
payments of interest on the Notes.
If Government revenue decreases, some or all of the Government's expenditure reduction plans prove
insufficient, and state-owned enterprises' dependence on public finances is not reduced, Croatia may
not be able to service its public debt and, as a result, to repay principal and make payments of interest
on the Notes
Without sufficient structural reforms aimed at reducing the dependence of state-owned enterprises on
public finances and at fostering greater economic efficiency through broader private sector participation,
revenue raising measures could prove inadequate to cover the continued increases in public debt and
interest payments. As a result, the primary deficit could become greater and debt servicing in turn more
demanding. Government payment capacity may become further affected by economic cyclical trends and
the risk of a delayed recovery of key economic sectors. Actual economic growth in 2015 may be lower
than Government projections and assumptions used for the 2015 budget. Lower than expected growth
would have a negative impact on budget revenue and negative implications for adhering to the Excessive
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Deficit Procedure. Lower than expected growth would increase the Government deficit (with an
unchanged level of expenditure) thereby making it more likely that the Government will fail to meet the
targets set in the Excessive Deficit Procedure. In a lower growth environment, additional expenditure
reduction measures may be required to adhere to the Excessive Deficit Procedure.
Taken as a whole, reduced revenue, coupled with high expenses related to public wages, social benefits,
interest payments, healthcare system, pensions and subsidies, may adversely affect Croatia's ability to
repay principal and make payments of interest on the Notes.
There can be no assurance that Croatia's credit ratings will not change
The long term foreign and domestic currency debt of the Republic is currently rated BB by S&P and Ba1
by Moody's. In August 2014, Fitch downgraded its foreign currency long term issuer default rating of the
Republic to BB from BB+ previously, and downgraded its local currency long term issuer default rating
to BB+ from BBB- previously. In January 2014, S&P downgraded its ratings from BB+ to BB and in
March 2014 Moody's revised its outlook from stable to negative. There can be no guarantee that the
Republic will not experience further credit downgrades or negative revisions to the outlook. Deterioration
in key economic indicators or the materialisation of any of the risks discussed herein may contribute to
further credit rating downgrades. In turn, any adverse changes in an applicable credit rating or credit
rating outlook could adversely affect the trading price for the Notes. In addition, negative ratings action
could adversely affect Croatia's ability to refinance existing indebtedness or finance its deficit and could
affect payment of principal and interest under the Notes.
As at the date of this Offering Circular, S&P and Fitch are established in the European Union and are
registered under Regulation (EU) No 1060/2009 (as amended) (the "CRA Regulation"). Moody's is not
established in the EEA but the rating it has given to the Notes is endorsed by Moody's Investors Service,
Ltd, which is established in the EEA and registered under the CRA Regulation. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal
at any time by the assigning rating agency.
Private Croatian borrowers may not be able to repay or reschedule their debt which may have a
material adverse effect on the Croatian banking system and the Croatian economy
Private debt in Croatia has grown rapidly since the mid-2000s as corporate and household sectors
accumulated a heavy debt burden. Household debt in Croatia as a share of GDP is one of the highest
among Central and Eastern European countries. Non-publicly guaranteed private sector external debt
relates almost entirely to foreign borrowing by the corporate sector and banks. Non-publicly guaranteed
private sector external debt has remained relatively flat in recent years and amounted to EUR 29.3 billion
as at 31 January 2014 and to EUR 28.5 billion as at 31 October 2014. Non-performing loans have been
increasing continuously since the economic crisis, from 4.9 per cent. in 2008 to 17.2 per cent. as at 30
September 2014 and may continue to rise. Non-performing loans to enterprises have experienced the
greatest increase, from 7.2 per cent. in 2008 to 30.6 per cent. as at 30 September 2014. See "Monetary
Developments, International Reserves and Financial System -- Loan Exposure").
Failure of private borrowers to repay or reschedule their debt may have a material adverse effect on the
Croatian banking system and the Croatian economy. In turn, this may affect Croatia's ability to repay
principal and make payments of interest on the Notes.
The high level of foreign ownership in the Croatian banking system makes it vulnerable to disruption
as a result of internal or external factors
As at 31 December 2014, foreign banks owned approximately 89.8 per cent. of banks' assets in Croatia.
The Croatian banking system is exposed to the banking systems of other European countries, including
Italy and Austria. Foreign banks may rebalance their global loan portfolio in a manner adversely
affecting Croatia as a result of events related or unrelated to Croatia, including as a result of adverse
economic developments in the eurozone and negative factors impacting the sovereign debt markets. In
addition, foreign banks may decrease funding to their subsidiaries operating in Croatia due to actual or
perceived deterioration in asset quality, particularly in the event of a weaker than expected economic
performance and further increases in non-performing loans. As a result of these or other factors, or other
potential shocks, foreign banks may revise their business strategies in, or relating to, Croatia and in
particular their decision to fund their subsidiaries in Croatia. This may lead to, among other things, a loss
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