A fund set up to invest in Bulgarian farmland is to close, presenting a potential windfall to investors, thanks to the poor performance of its shares, which traded at a large discount to asset value.

The Elarg Agricultural Land Opportunity Fund, set up six years ago, intends to reverse on a decision to extend its life to 2018 thanks to the poor performance of its stock despite demonstrating the gains to be made in Bulgarian farmland.

"The negative tendencies persisting on the stock exchange call for a different solution," Andrey Kruglykhin, Elarg executive director, said.

The closure proposal, to be put to a shareholder vote in February, follows the failure of a series of efforts to attract investors, through measures such as paying down debt, cutting costs and in August settling a dispute with a property management company, Elana, by buying it.

The group, set up as a real estate investment trust (Reit), also sold at a profit more than 10% of its land, reducing its landbank to 25,117 hectares as of the end of September.

Profit margins on the disposals averaged nearly 90% in the last quarter of 2010 and first three months of this year, and 125% in the April-to-June period of 2011, according to calculations by broker Adamant Capital Partners.

'Low valuation'

"In spite of these positive trends on the agricultural land market and the improved prospects for the company, the price of shares of the fund still remains low, and the markets are still influenced by external factors," Mr Kruglykhin said.

The markets "do not appreciate properly both the work performed by the management and the value of our assets".

The company, "for guidance", flagged the gap between its recent market capitalisation of about 40m leva ($27.4m) and the value of its portfolio, pegged at the close of 2010 at 106.5m leva ($72.9m).

Elarg would not be the first agricultural to close because of the sustained discount of its shares, with London-listed Ceres Agriculture wound up last year because of the poor performance of its stock.

Phaunos Timber Fund, run by the same manager as Ceres, has tried a range of measures to improve its own rating.

Windfall gain?

Ironically, the announcement of the closure proposal itself perked up the group's shares, which soared 10.5% to 0.80 leva in Sofia.

A close at this level would be the highest since March last year.

Indeed, liquidation promises notable gains to recent investors, including Agromanage, the group's new management company, which bought its 49.5% stake in Elarg seven months ago for E0.348 a share, equivalent to 0.68 leva at current exchange rates.

That implies a total value of its investment of 20.1m leva, or $13.8m.

Other listed Bulgarian property funds include Advance Terrafund and Agro Finance.