Новини    15 грудня 2015 17:08

Loan trainspotting. Many agricultural companies appeared to be unable to serve the multi-million foreign currency loans. Are the banks ready to review the repayment conditions?

The success of agricultural companies depends on circulating capital. As a rule, the main part of it is on loan. Large agro holding companies work for export and receive foreign currency. They are in better situation. Medium and small businesses are focused on receiving expensive hryvnia loans.

What influenced agricultural companies’ paying capacity last two years? The appetite of the businessmen inspired by the growing market, and the desire of financial institutions to nourish the development of agribusiness with loans led to the current situation. As a result, the loans turned to be incommensurable with companies’ operating results and potential opportunities. Agricultural holdings started to contract new debts to get out of the old ones.

The passion of the banks disappeared very quickly, they do not want to risk so they get out of insecure businesses. Unfortunately agrarian business is a risky one.
One more factor that influenced the financial situation of agricultural companies is the developing of side businesses that are not connected with the main operating activities. Often such diversification did not bring the expected results but continued to consume the resources.

Many companies financed long-term projects by short-term loans. This is an absolutely wrong policy that inevitably leads to the problems with liquidity and debt servicing.
When a company faces the challenge to repay the debt, it can ask the bank to negotiate restructuring the loan. As a rule, the companies’ owners, who do not plan to get away from the country, are interested in the procedure. But there are other businessmen, who live for the day, do not think about tomorrow and place their personal wealth over the company’s future.

The bank that finances business is not a pawn-shop. It does not sell a factory or an elevator. The bank should give money (and of course get it back). The last thing a bank is thinking about is how to acquire the pledged assets. Expenses are very high, including the law costs and the assets maintenance. The loan restructuring summary plan always depends on the borrower’s business possibilities. The main thing it to make the accurate business recovery forecast and therefore to understand when the company can repay the loan. To get a better vision of the situation we analyze the client’s activity. Having data about the lands, amount and structure of crops and equipment available, we can precisely predict how much the company can earn and how much it will be able to repay to the bank. It takes a lot of time to agree the loan restructuring plan. It all depends on the number of the parties involved. It is not easy to negotiate the general strategy if a client has more than 30 creditor banks and nearly the same number of bondholders. Many creditor banks work not in Ukrainian legal framework. Others continue to insist on their demands to the last moment due to their inner norms and procedures or the funds limit. In this case outsource financial advisers can help. The interest in Ukrainian market from the well-known international companies such as Rothschild, Lazard, Houlihan Lokey, PwC, Alvarez & Marsal increased greatly last two years. Hundreds of millions dollars loans are being restructured nowadays in Ukraine for the first time.

In 2016 agricultural companies will continue restructuring the debts. Furthermore, nobody can guarantee that in the present situation the banks will not have to reconsider the conditions of the loans restructuring again. The most important thing for the agro companies’ development is the minimization and the optimization of the debt burden. To survive the companies will have to restructure the loans in time, optimize the costs, reduce the foreign currency risks and focus on the most profitable segments.

Text: Alexei Misuragin, the head of the UniCredit Bank department, working with large corporate clients in agro industrial sector.

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