Новини / Фінанси     26 грудня 2015 13:35

Proud and dependent. Landlord inquired holdings UkrLandFarming and Mriya about their treatment

The silence in the central “UkrLandFarming” (ULF) office is occasionally broken by phone calls. There is a huge aquarium and expensive leather sofas in the lobby. An enormous souvenir egg made of hundreds of crystals is placed on a stand made of wood. It is in a big meeting room and it glitters with all the colors of the rainbow. All this luxury should assure the visitor of the business stability.

However, last two years Oleg Bakhmatyuk the owner of ULF and the largest landowner in Ukraine is not ready for new purchases. He is trying to save his agricultural holding. “It’s not a secret that I spend more time in airplanes than on the ground. It is necessary to personally communicate with foreign investors and partners”, said the businessman. The size of the company’s debts exceeded $1.6 billion. $350 million of them account for “Avangard” holding. Shares of the largest Ukrainian producer of eggs and egg products are listed on the London stock exchange. This year their quotes have decreased by almost 90%. “Oleg always wanted to get more and provided very aggressive company development policy, this led his company to the crisis”, says the owner of the other large agricultural holding. How does Bakhmatyuk plan to solve his loan issues?

Paying the debts

In October 2015, negotiations on restructuring of the five-year “Avangard” Eurobonds for $200 million issued in 2010 were over. London Court extended debt repayment for three years. Moreover the company will start paying the full interest rate only in 2018. “Perhaps, if it is necessary, the lenders will even prolong this period”, says ULF Deputy Director Igor Petrashko.

There was no other possibility for “Avangard” to pay off the debts. The situation in the company worsened dramatically in the middle of 2014. Due to Crimea annexation and the military actions in the east of our country the holding lost several enterprises. For example, a poultry factory in Luhansk region was destroyed and sold as scrap metal and the birds were decimated by the terrorists. As a result, the laying hens’ number was decreased by almost one third, to 22 million.

The bulk of the loans (about $1.2 billion) were taken by ULF Holding in foreign currency, therefore the devaluation of grivna severely destabilized the financial condition of the group. According to Petrashko, they managed to negotiate restructuring with all creditor banks. Where are all these debts from? Many of the loans were acquired together with the purchased companies. For example, the debt of purchased in 2011 sugar holding “Rise”, previously owned by Vitaliy Tsehmistrenko, exceeded $300 million. Loans were also taken for the construction of elevators, poultry complexes, factory for biogas production in Kherson region, the purchase of equipment. ULF is finishing the project of the construction of elevators with capacity of about 3.5 million tons. “When we started this project, the conditions were absolutely different. In particular, the payback period was about 7.5 years. Now it increased to 12-14 years – says Bakhmatyuk. – If we had not had the commitments, we would have given up this project.”

The company has problems with operating capital. It is close to impossible to get money from banks. They have to use their own funds. “Last sowing campaign appeared to be the most difficult in the history of the holding. Banks decreased all credit limits. Last five years they were $400-500 million, but now they are about $50-100 million”, said Bakhmatyuk in an interview for one of Ukrainian media. There is also a difficult situation with the suppliers of seeds, fertilizers and plants protection products. Previously, they did not require prepayment and supplied products by installments for eight or nine months. Now almost all vendors require prepayment or payment after delivery. “It badly influenced our liquidity, washed out our working capital”, explains the businessman. Previously operating capital was supported by the group’s own banks, but today there is no possibility for ULF to get resources quickly. Bakhmatyuk’s financial institutions “VAB Bank” and “Financial Initiative” are in the process of liquidation. The main bank of the group was “VAB Bank”. The company is now repaying it a loan of $135 million. “The banks of the group could give the liquidity to the sowing campaign, but we have never misused this funding, and the company’s dependence on the bank was not so great”, claims Petrashko.

ULF acquired the determent of repayment for nearly all their loans (there is only one unresolved debt of $200 million to “Sberbank Rossii”). ULF reorganized its operational activity and expects to profit in 2016. The holding had to suspend its sugar business. They temporarily stopped the cultivation and processing of sugar beets and shortened the distribution of equipment and fertilizers. The company will actively develop the crops growing and the production of eggs and egg products. Bakhmatyuk still counts on export. He was one of the first who opened the Chinese market for Ukrainian products. 5% of ULF shares were sold for $200 million to the global giant “Cargill” in 2014. The businessman says that it was done in order to be able to sell up to 1.5 million tons of grain annually in the Chinese market. It is possible because “Cargill” has been operating in China for many years. ULF also continues to export its products to the Middle East, Asia and North Africa. In 2015, the holding company “Avangard” started to sell the eggs and egg products to the European market. However, EU’s quotas are too small for such a giant. Every year “Avangard” produces 7.6 billion eggs, but European annual quota is only 300 million. Bakhmatyuk is not going to give up. For example, to increase exports, he is ready to find a new partner for the construction of his own port. “After the debt restructuring we have enough funds so in 2016 we will reach positive EBITDA”, summarizes Petrashko.

What Dreams May Come

In agricultural holding “Mriya” problems began in August 2014 when the company failed to pay $9 million interest on Eurobonds. Soon creditors demanded early repayment of $400 million Eurobonds. As a result, the holding announced a technical default. The former management of the company offered creditors simply to cancel $900 million debt. The total loan portfolio of the holding company was about $1.3 billion. The creditors requested “Mriya’s” management team to provide a six-month financial report on company’s activities. However the then Chief Financial Officer of agricultural holding Alexander Cherniavskiy said that the preparation of the document was “expensive and inappropriate.” An international scandal broke out. As a result, the holding owner’s son Ivan Guta and the company’s Chief Executive Officer Nikolaiy Guta were declared wanted by Interpol in winter 2015. Guta Jr. was charged with fraud – embezzlement of creditors’ funds. Ivan Guta has been living in Switzerland for some years and has not participated in business management in any way. Now once one of the largest companies in the country, with the land bank of about 320 000 hectares, is managed by creditors – international banks and investment funds.

Simon Cherniavskiy who was the head of “HarvEast”, owned by Rinat Akhmetov became a new CEO. Why was the Englishman with Ukrainian roots chosen to run the company? The foreign investors trusted nobody of our fellow citizens.

By the time Cherniavskiy arrived to “Mriya”, all former senior and middle-level managers disappeared. “They rented an office at an unknown address, and occasionally chatted online with subordinates,” says one of the employees. All documents related to the agricultural holding activities disappeared with top-managers. “Empty dark corridors, oppressive silence and only three people in the office,” Cherniavskiy recalls his first working days in the company.

Why did not the company’s creditors suspect anything wrong earlier? With more than $1 billion loan, the amount of debt per hectare at “Mriya” was about $450. At the same time its managers declared the EBITDA to be about $600 per hectare. “Western investors are accustomed to trust the financial documents, – says one of top-managers of international audit company. – We were trying to convince our clients that the figures are overstated, but they dismissed the warning with the words: “It is written in the financial reports.” “In the last couple of years it was clear that with that amount of debt this business would burst out sooner or later “, shrugs Cherniavskiy.

The new CEO brought his team to “Mrіya”, a new financial director, operational director, sales directors, communications and security directors. First of all, Cherniavskiy established control over cash flows. After the audit it was revealed that the company’s land bank is not 260 000 hectares as the former owners stated, but only 200 000 hectares. A lot of contracts with a double registration were found. The announcement of technical default does not cancel “Mriya’s” commitments to creditors. The new team has prepared a restructuring plan. Now total holding’s debt is about $1.1 billion.

By the end of 2015, “Mriya” is going to sign a restructuring agreement with a group of creditor banks. Parties do not make the agreement conditions public. It is most likely that a repayment term for most of the loans will be extended from one to five or seven years. “We expect to transform the bulk of the debt into shares – says Cherniavskiy. – At the same time, the company will not have the majority shareholder. All shareholders will be minor; it will help to apportion the debts equally”.

Company’s creditors funded it with working capital for sowing campaign. “They gave us $25 million – says Cherniavskiy. – $5 million went for the reconstruction and update of the machinery, and the rest for financing the harvesting and autumn sowing campaigns”.

Can the new team save “Mriya”? The company has already repaid $15 million out of $25 million given by creditors. “We were ready to fully repay the line of credit, – said the financial director of the holding Ton Huls. – We are grateful for the creditors’ trust. Expecting for a new credit line in 2016, they offered us to repay only a part of the loan, which is about $15 million”. “Mriya” has already earned some money for the sowing in 2016. In total, holding needs about $55 million, in 2015 the company’s revenue was about $68 million.

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