Croatia Gives State Guarantee to Keep Shipyard Afloat

The Croatian government said on Thursday it would guarantee loans of up to 150 million kuna ($23 million) to keep one of the country's biggest shipyards afloat and give it time to find a strategic long-term partner.

The 3.Maj shipyard in the northern Adriatic port of Rijeka is owned by Croatia's biggest shipbuilding group Uljanik whose other shipyard in the port of Pula has already been placed into bankruptcy procedure.

Under EU state aid rules, the government cannot provide financial support for the shipyard but can guarantee loans provided by other parties.

"The guarantee serves for taking a loan at Croatia's state development bank HBOR or commercial banks. Our intention is to make possible further work on the ships already at a high level of completion and to reduce damage for the state coffers," Economy Minister Darko Horvat told a cabinet session.

Prime Minister Andrej Plenkovic said that a longer-term goal was to give 3.Maj time to find a strategic partner that would help it run a sustainable business in the future, which could include shifting part of the business to the port of Pula where Uljanik, which is 25% state owned, is based.

"It could also mean a part of business taking place in the Pula dock," Plenkovic said.

Over the past two years the government has had to pay out 4.5 billion kuna to lenders after guaranteeing loans extended to Uljanik's two big shipyards because ships on order were not delivered.

That dented Croatia's otherwise solid public finances which were in surplus last year for the second year in a row. A sound budget position is a key element of Croatia's efforts to adopt the euro in the next 4-5 years.

For this year the government expects a small budget deficit of 0.3% of gross domestic product, reverting to a surplus of up to 1% of GDP in the following three years.

($1 = 6.6448 kuna) (Reporting by Igor Ilic; Editing by Susan Fenton) (