Obligation Croatica 2.75% ( XS1713475306 ) en EUR

Croatica

100.28 % ▼

Croatie

XS1713475306 ( en EUR )

2.75% par an ( paiement annuel )

26/01/2030

Prospectus brochure de l'obligation Croatia XS1713475306 en EUR 2.75%, échéance 26/01/2030

27/01/2027 ( Dans 352 jours )

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 émise par Croatica ( Croatie ) , en EUR, avec le code ISIN XS1713475306, paye un coupon de 2.75% par an.
Le paiement des coupons est annuel et la maturité de l'Obligation est le 26/01/2030

REPUBLIC OF CROATIA
1,275,000,000
2.75 per cent. Notes due 2030
Issue price: 97.943 per cent.
The issue price of the 1,275,000,000 2.75 per cent. Fixed Rate Notes due 2030 (the "Notes") issued by the Republic of Croatia (the "Issuer", the
"Republic" or "Croatia"), will be 97.943 per cent. of their principal amount. The Notes will mature on 27 January 2030 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 2.75 per cent. per annum from and including 27 November 2017 and will be payable in Euro annually in arrear on 27 January in each year,
commencing on 27 January 2019. 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 Ba2 (stable outlook) by Moody's Investors Service, Inc. ("Moody's"), BB (positive outlook) 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 (stable outlook) by Fitch Ratings Ltd. ("Fitch").
The Notes will be rated Ba2 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 SA/NV ("Euroclear"), on or about 27 November 2017 (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
BANCA IMI/PRIVREDNA BANKA
BARCLAYS
J.P. MORGAN
ZAGREB
23 November 2017

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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".
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:
(i)
have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits
and risks of investing in the Notes and the information contained in this Offering Circular or any
applicable supplement;
(ii)
have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact the Notes will have on its
overall investment portfolio;
(iii)
have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes,
including where the currency for principal or interest payments is different from the potential
investor's currency;
(iv)
understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant
financial markets; and
(v)
be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
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
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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,
STABILISATION MAY NOT NECESSARILY OCCUR. 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 CEASE 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 Croatian
National Bank (Hrvatska narodna banka) (the "HNB"), expressed as kuna per Euro.

2011
2012
2013
2014
2015
2016
2017

(EUR/HRK)
January ..........................................
7.396420
7.546707
7.567746
7.629820
7.679826
7.652777
7.534989
February ........................................
7.410873
7.579384
7.582399
7.654972
7.709544
7.636668
7.450718
March ............................................
7.383749
7.539590
7.585782
7.654440
7.648124
7.566498
7.419710
April ..............................................
7.362212
7.494357
7.602485
7.627459
7.594858
7.494619
7.441166
May ...............................................
7.391226
7.528940
7.568123
7.593665
7.553892
7.494223
7.433633
June ...............................................
7.412196
7.546585
7.500346
7.573554
7.565026
7.511915
7.405667
July ................................................
7.419738
7.494496
7.494112
7.599809
7.579293
7.489517
7.405674
August ...........................................
7.454965
7.486777
7.521353
7.626000
7.554396
7,477713
7.398765
September .....................................
7.486844
7.426569
7.587204
7.618519
7.574467
7.490070
7.450196
October ..........................................
7.483324
7.500421
7.614419
7.650459
7.622835
7.502932
7.497024
November ......................................
7.487735
7.536449
7.627680
7.663895
7.598376
7.513263

December ......................................
7.507179
7.529460
7.633202
7.667075
7.634682
7.534257

Yearly average.............................
7.434204
7.517340
7.573458
7.630014
7.609601
7.529383
n.r.
_______________
Note: The value for October 2017 refers to the average values up to October 16, the last day covered by this report.
Source: HNB
Croatia has a managed floating exchange rate regime, where the exchange rate of the kuna is not fixed
against another foreign currency or a basket of currencies but is, rather, freely determined by the foreign
exchange market. The exchange rate therefore floats depending on the foreign exchange supply and
demand on the foreign exchange market. The HNB does not predetermine the floor or the ceiling level of
the exchange rate that it attempts to maintain or the level at which it will necessarily intervene. However,
the HNB attempts to prevent excessive exchange rate volatility by occasional market interventions or by
other monetary policy instruments that influence the foreign exchange market or money market conditions
such as open market operations and reserve requirements, among others. The HNB aims to maintain the
stability of the EUR/HRK exchange rate in order to meet its primary objective of maintaining price stability
in Croatia. In particular, in economies where the role and circulation of the euro are substantial and that
have significant capital inflows such as Croatia's, prices are very sensitive to exchange rate fluctuations. As
a result, exchange rate movements significantly impact household inflationary expectations. The effect of
this is augmented by the population's sensitivity to inflation as a result of hyperinflation episodes in the
former Yugoslavia and in the early 1990s.
In 2015, the nominal EUR/HRK exchange rate appreciated mildly. The daily kuna/euro exchange rate
moved within a rather narrow range from 1.1 per cent. to 1.5 per cent. around an average annual exchange
rate of EUR/HRK 7.61, appreciating by 0.3 per cent. from 2014. At the beginning of 2015, depreciation
pressures appeared on the EUR/HRK exchange rate. This was due to the HNB's balance sheet adjustment
to the Government's decision to fix the CHF/HRK exchange rate for Swiss franc indexed loans. In order to
prevent further depreciation of the EUR/HRK exchange rate, the HNB intervened twice on the foreign
exchange market during January 2015 and February 2015 by selling EUR 498.9 million worth of foreign
currency to banks. Depreciation pressures appeared again during September 2015, mainly as a result of the
adopted amendments to the Consumer Credit Act and the Credit Institutions Acts that enabled conversion
of the Swiss franc indexed loans to euro loans. The HNB intervened on the foreign exchange market to
prevent further depreciation of the EUR/HRK exchange rate at the end of September 2014, by selling EUR
268.3 million worth of foreign currency to banks. The daily kuna/euro exchange rate was stable during the
last quarter of 2015. At the end of December 2015 it stood at 7.64 EUR/HRK, an appreciation of only 0.3
per cent. from the end of 2014.
In 2015, the HNB intervened three times on the foreign exchange market by selling a total amount of EUR
767.2 million worth of foreign currency to banks. When transactions with the European Commission and
the central Government are included (net foreign purchase of EUR 935.1 million), total foreign exchange
transactions of the HNB resulted in a net foreign exchange purchase in the amount of EUR 167.9 million
and the creation of HRK 1.3 billion.
In 2016, appreciation of the nominal EUR/HRK exchange rate continued. The daily kuna/euro exchange
rate moved within a range from 0.9 per cent. to 1.8 per cent. around an average annual exchange rate of
7.53 EUR/HRK, appreciating by 1.1 per cent. from 2015. This was mostly attributable to the continuation
of the surplus in the current account of the balance of payments, stronger inflows of EU funds, increase in
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demand for kuna denominated loans (mostly from households) and a slowdown in credit institutions'
deleveraging.
The HNB intervened on the foreign exchange market several times in 2016 to prevent stronger appreciation
of the EUR/HRK exchange rate by buying a total amount of EUR 1,018.8 million worth of foreign currency
from banks. It purchased EUR 83.5 million in May 2016, EUR 69.0 million in September 2016 and EUR
866.3 million in December 2016 (EUR 716.3 million in two foreign exchange auctions and EUR 150.0
million out of auction).
Total foreign exchange transactions of the HNB in 2016 resulted in a net foreign exchange purchase in the
amount of EUR 866.6 million (creating HRK 6.5 billion of reserve money). The HNB purchased EUR
1,018.8 million from banks and EUR 125.6 million from the central Government and sold EUR 277.8
million to the European Commission.
During the first eight months of 2017, appreciation of the nominal EUR/HRK exchange rate continued.
This trend reversed in September when the nominal EUR/HRK exchange rate started to depreciate. By
mid-October it returned to a level similar to the one observed at the beginning of the year. The daily
kuna/euro exchange rate moved within a range from 0.7 per cent. to 1.8 per cent. around an average
exchange rate of EUR/HRK 7.44. By 31 October 2017, the EUR/HRK exchange rate appreciated by 0.7
per cent., from EUR/HRK 7.56 at the end of 2016 to EUR/HRK 7.51.
The HNB intervened in the foreign exchange market several times in 2017 to alleviate appreciation
pressures on the EUR/HRK exchange rate by buying a total amount of EUR 911.5 million worth of foreign
currency from banks. It purchased EUR 424.0 million in June (EUR 374.0 million in two foreign exchange
auctions and EUR 50.0 million out of auction), EUR 101.5 million in July 2017, EUR 126.0 million in
August 2017, EUR 120.0 million out of auction in September 2017 and EUR 40.0 million out of auction in
October. Data for the first ten months of 2017 also includes a direct purchase of foreign exchange from
banks outside auctions of EUR 100.0 million on 29 December 2016, as the value date of that transaction
was 2 January 2017.
Total foreign exchange transactions of the HNB during the first ten months of 2017 resulted in a net foreign
exchange purchase of EUR 934.8 million (creating HRK 7.0 billion of reserve money). The HNB purchased
EUR 911.5 million from banks and EUR 23.3 million from the central Government. There were no
transactions done with the European Commission.
The following table sets forth the period end, average, high and low official mid-point rates, expressed as
kuna per U.S. dollar:

Period End
Average(1)
High
Low
2011 ...........................................................................
5.819940
5.343508
5.825236
4.947426
2012 ...........................................................................
5.726794
5.850861
6.194939
5.615424
2013 ...........................................................................
5.549000
5.705883
5.943642
5.513375
2014 ...........................................................................
6.302107
5.749322
6.302107
5.44043
2015 ...........................................................................
6.991801
6.862262
7.258268
6.299529
2016 ...........................................................................
7.168536
6.803718
7.247732
6.479354
January 2017 .............................................................
7.000602
7.103393
7.260492
6.980592
February 2017 ...........................................................
7.020088
6.999946
7.085598
6.910454
March 2017 ...............................................................
6.927810
6.946884
7.052038
6.823116
April 2017 .................................................................
6.831516
6.951871
7.035659
6.831516
May 2017 ..................................................................
6.642248
6.734946
6.838221
6.601405
June 2017 ..................................................................
6.490225
6.598044
6.648577
6.490225
July 2017 ...................................................................
6.324389
6.445860
6.549226
6.319018
August 2017 ..............................................................
6.202545
6.269399
6.315875
6.154188
September 2017 ........................................................
6.354026
6.248933
6.373698
6.159756
_______________
Source: HNB
Note: Calculations based on mid exchange rate.
(1) Average of daily rates.
The kuna depreciated against the U.S. dollar in 2011, mainly reflecting movements in the global foreign
exchange markets during the last two months of the year, characterised by the strengthening of the U.S.
dollar against the euro. As at 31 December 2011, the exchange rate stood at U.S.$/HRK 5.82. In 2012, the
U.S.$/HRK exchange rate appreciated slightly by 1.6 per cent., due to the weakening of the U.S.$/EUR rate
on the global foreign exchange markets. As at 31 December 2012, the exchange rate stood at U.S.$/HRK
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5.73. In 2013, the U.S.$/HRK exchange rate appreciated by 3.1 per cent., due to the weakening of the U.S.
dollar against the euro on the global foreign exchange markets. At 31 December 2013, the exchange rate
stood at U.S.$/HRK 5.55. The kuna depreciated significantly against the U.S. dollar in 2014, mainly
reflecting movements in the global foreign exchange markets during the second half of the year, due to the
strengthening of the U.S. dollar against the euro. The U.S.$/HRK exchange rate depreciated by 13.6 per
cent. in 2014, from U.S.$/HRK 5.55 at the end of 2013 to U.S.$/HRK 6.30 at the end of 2014. In 2015,
depreciation of the kuna against the U.S. dollar continued, mainly as a result of the strengthening of the
U.S. dollar against the euro on the global foreign exchange markets. At 31 December 2015, the exchange
rate stood at U.S.$/HRK 6.99, depreciating by 10.9 per cent. from the end of 2014. Depreciation of the
kuna against the U.S. dollar continued in 2016, reflecting the strengthening of the U.S. dollar against the
euro on the global foreign exchange markets. In such an environment, the U.S.$/HRK exchange rate
depreciated by 2.5 per cent. in 2016 and stood at U.S.$/HRK 6.99 at the end of 2015 to U.S.$/HRK 7.17 at
the end of 2016.
During the first ten months of 2017, the kuna appreciated against the U.S. dollar, mainly reflecting
movements in the global foreign exchange markets, due to the weakening of the U.S. dollar against the
euro. By 31 October 2017, the U.S.$/HRK exchange rate appreciated by 11.5 per cent., from U.S.$/HRK
7.17 at the end of 2016 to U.S.$/HRK 6.35 at mid-October 2017.
After unfavourable trends in 2013, the indicators of Croatian export price competitiveness improved again
in 2014. The average real effective kuna exchange rate deflated by producer prices and continued to
depreciate at a broadly similar pace compared to the previous year. In 2015, depreciation continued at its
fastest pace since 2010 (by 3.8 per cent.), mostly due to the nominal effective depreciation of the kuna. In
contrast, after appreciating during 2013, the average real effective kuna exchange rate deflated by consumer
prices depreciated in 2014. This mainly reflected price developments in Croatia relative to Croatia's main
trading partners, thus returning to its 2012 level. In 2015, a combination of the kuna nominal effective
depreciation and favourable price developments in Croatia relative to its main trading partners contributed
to further depreciation of the real effective kuna exchange rate deflated by consumer prices (by 4.3 per
cent.). Overall, the indicators of Croatian export price competitiveness reveal mixed developments in 2016.
The average real effective kuna exchange rate deflated by producer prices was broadly stable during 2016,
with more favourable domestic price developments (relative to main trading partners) offsetting nominal
effective appreciation of the kuna. In contrast, the average real effective kuna exchange rate deflated by
consumer prices, appreciated mildly. Both indicators of Croatian export price competitiveness deteriorated
slightly during the first eight months of 2017. This was due to the appreciation of the kuna's nominal
effective exchange rate, which was only partly alleviated by the relatively favourable domestic price.
In the years before the crisis, the kuna real effective exchange rate indices deflated by unit labour costs in
the whole economy. The industry was signalling deterioration of cost competitiveness due to the nominal
effective appreciation of the kuna as well as due to faster growth of unit labour costs in Croatia than in its
main trading partners. These negative trends reversed in 2009, 2010, 2011 and 2012 when kuna real
effective exchange rate indices, deflated by unit labour costs, depreciated. The real effective kuna exchange
rate, deflated by unit labour costs, in the whole economy continued to depreciate in 2013 and 2014 but at a
much slower pace compared to 2012. In 2015, the real effective kuna exchange rate deflated by unit labour
costs in the whole economy whilst the real effective kuna exchange rate in industry depreciated further,
with the former depreciating even faster than the year before. In 2016, depreciation of the real effective
kuna exchange rate, deflated by unit labour costs, continued, both in the whole economy and in industry,
although at a slower pace. These positive trends reversed in the first half of 2017, mostly due to the
appreciation of the kuna's nominal effective exchange rate, but also to some extent due to relatively
unfavourable domestic unit labour cost compared to Croatia's major trading partners. Nonetheless,
improvements in cost competitiveness in the period following the crisis were sufficient to offset the losses
in the pre-crisis period.

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CONTENTS

Page
THE REPUBLIC OF CROATIA .................................................................................................................. i
EXCHANGE RATES ................................................................................................................................. iv
RISK FACTORS .......................................................................................................................................... 1
TERMS AND CONDITIONS OF THE NOTES ....................................................................................... 11
SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM ............... 31
USE OF PROCEEDS ................................................................................................................................. 34
OVERVIEW OF THE REPUBLIC OF CROATIA ................................................................................... 35
THE ECONOMY ....................................................................................................................................... 41
FOREIGN TRADE AND INTERNATIONAL BALANCE OF PAYMENTS ......................................... 60
MONETARY DEVELOPMENTS, INTERNATIONAL RESERVES AND FINANCIAL SYSTEM ..... 72
PUBLIC FINANCE ................................................................................................................................... 95
PUBLIC DEBT ........................................................................................................................................ 117
TAXATION ............................................................................................................................................. 125
SUBSCRIPTION AND SALE ................................................................................................................. 126
GENERAL INFORMATION .................................................................................................................. 128

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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 acceded to the European Union ("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, the Government
of Croatia (the "Government") introduced 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.
Croatia has also undergone and continues to undergo changes in legislation due to its EU accession. As a
result, 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 the 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 (as defined below) imposed (see below).
Following accession to the EU, Croatia's economy is exposed to increased competition with other EU
Member States (a "Member State"). 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 previously 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 now relies on each
country's respective Stabilisation and Association Agreement ("SSA"), which is each such country's
bilateral trade agreement with the EU. 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").
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 (the "ECB"). 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
treaty for Croatia's accession into the EU (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
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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's economy remains vulnerable to external shocks and internal economic challenges 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, which negatively affected the Croatian economy,
and the ongoing political turmoil in certain emerging markets as well as the continuing uncertainty
regarding certain Member States.
As a result of the ongoing hostilities between Russia and Ukraine, which commenced in 2014, the EU and
the United States have supported Ukraine and imposed 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 negative
economic and geopolitical consequences for Europe as a whole and indirectly impact Croatia through its
trading partners Austria and Germany and in turn impact the Croatian economy. Further, Croatia could be
adversely affected by rising tensions in the EU and a subsequent slowdown in the EU economy as Croatia
has various trade linkages within the EU (See "Foreign Trade and International Balance of Payments
Geographical Distribution of Croatia's Trade in Goods").
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 continues to recover in the future, the recovery may not be sustained and may reverse. This could
have a material adverse effect on Croatia's ability to repay principal and make payments of interest on the
Notes and on Croatia's credit rating.
Croatia's economy remains vulnerable to external adverse economic and financial conditions including
the impact of general "contagion" effects. These could have a material adverse effect on Croatia's
economic growth
International investors' reactions to the events occurring in one market sometimes appear to demonstrate a
"contagion" effect, in which an entire region or class of investment is disfavoured by international investors,
Croatia could be adversely affected by negative economic or financial developments in neighbouring
countries, EU countries or countries with similar credit ratings. While in recent years Croatia has reduced
its external vulnerability and implemented sound macroeconomic policies, Croatia has been adversely
affected by such contagion effects on a number of occasions, including following the 1998 Russian financial
crisis and the 2008 global financial crisis. Similar developments can be expected to affect the Croatian
economy in the future.
There can be no assurance that the factors such as those described above or similar events will not
negatively affect investor confidence in markets such as Croatia. In addition, there can be no assurance
that these events will not adversely affect Croatia's economy and its ability to raise capital in the external
debt markets in the future.
The uncertainties surrounding the fallout from Agrokor could have a material adverse effect on
Croatia's economic performance
In 2013, Croatia's privately held food and retail group Agrokor, acquired Mercator (a Slovenian retail
company), creating one of the largest food and retail businesses in central and eastern Europe. During this
acquisition, Agrokor amassed significant debts to its creditors and suppliers, resulting in the need for
increased liquidity from banks and bondholders.
Over-expansion backed by high leverage, led to an immediate need for a cash injection. In January 2017,
Agrokor was unable to refinance and rating agencies downgraded its debt.
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