Bankers are expecting more equity capital markets issuance by Ukrainian farming companies, offering much-wanted exposure to agriculture – which thanks to surging global demand and strong soft commodity prices is becoming a key investment theme.
“We think that 2008 will be a landmark year for share issues by agricultural groups in Ukraine,” said Tamara Levchenko, agriculture analyst at leading Ukrainian investment bank Dragon Capital.
Blessed with an abundance of highly fertile black earth farmland, Ukraine is increasingly seen as a key player on the global agricultural stage. WTO accession will ensure wider markets for Ukrainian produce.
Although most of Ukraine’s of farmland is still cultivated by smallholders, the last few years have seen the emergence of entrepreneurial agricultural groups that are building up large land banks to achieve the economies of scale needed to take full advantage of still high soft commodity prices.
Many of those groups are now coming to international equity markets to raise additional capital to finance further land acquisitions and to fund machinery purchases.
The latest Ukrainian agribusiness to tap international investors is Mironovskiy Hleboproduct, which started trading on the London Stock Exchange last week after raising $323 million in an initial public offering , lead managed by Morgan Stanley and UBS.
The transaction is the largest agriculture-related play from the country to date.
“Vertical integration has been the recurring highlight amongst investors during the MHP roadshow. MHP’s business model not only allows it to enjoy full control over its operational supply chain, but also delivers the ability to mitigate input cost volatility,” said Frances Fahey, managing director, equity capital markets at UBS in London.
MHP is Ukraine’s leading poultry producer and is benefiting from growing meat consumption in Ukraine as a result of rising incomes. It has also diversified into grain production, which will enable it to supply its own feedstock for its poultry business, while droppings from its chicken farms are used to fertilise its fields.
Other Ukrainian agricultural companies that have raised capital abroad in recent months include cereal producer MCB Agricole, sugar which listed in Frankfurt in March after a E37 million private placement via Ukrainian investment bank Concorde Capital.
In the same month wheat and oilseed rape grower Landkom International, which is listed on the Alternative Investment Market in London, raised a further $23 million following its $111 million IPO in November 2007.
Sugar company Astarta and sunflower oil group Kernel have listed in Warsaw.
Richard Ferguson, a senior analyst at Nomura in London, said that although the prices of soft commodities have weakened in recent weeks, with food security increasingly rivaling energy security on the global political agenda, governments will seek to build up strategic reserves to ease concerns about potential food shortages, which will support prices going forward.