Sports tycoon flags appeal of Russia, Ukraine land

Steenord trumpeted the appeal of investing in former Soviet Union farmland as the fund, owned by Russian sports tycoon Nikolay Fartushnyak, unveiled a bid for Agrokultura triggered by its purchase of a 48% stake.

Steenord, which invests riches amassed by Mr Fartushnyak from his Russian-based Sportmaster sports retail empire, said that agriculture was one of a number of sectors that the fund was investing in a strategy of diversifying portfolio risk.

Russian aluminium billionaire Oleg Deripaska, and Ukraine's Oleg Bakhmatyuk, who built his fortune in energy, have also turned to agriculture.

And farmland in Russia and Ukraine has "a significant agricultural potential", Steenord said, even while acknowledging the "current political problems" which have seen an uprising by pro-separatist rebels in eastern Ukraine, and relations between Kiev and Moscow badly deteriorate.

'Investors need to be patient'

Steenord also acknowledged that while "many national and international investors and entities are active in agriculture in Ukraine and Russia, not all of them are successful".

Indeed, Agrokultura itself has yet to unveil a profit in six years, and also on Thursday unveiled losses of SEK48.8m for the first half of 2014, albeit down from a loss of E110.3m a year before, and reflecting a tumble in Ukraine's hryvnia.

However, one reason for the poor returns "is that investors need to be patient when investing in farmlands with poor economic history," the fund said.

"It takes at least three years to transform an underperforming farm into an average-performing farm, and at least five years to turn it into a well-performing farm."

While other areas, such as Western Europe and North America, "also have agricultural potential, the costs for farms and for realising these potentials are considerably higher.

"Steenord is convinced that investing in Eastern Europe is the better choice."

'Mr Fartushnyak's network'

The fund said that Agrokultura had "come a long way of turning its business into a well-performing business, but it is necessary to improve the financial results".

This would be achieved by the group's current management, with help from Mr Fartushnyak's "network in Russian agribusiness".

Steenord said that it "supports the current turnaround strategy of Agrokultura", which involves a retreat to the best-quality land, and a focus on cost cuts.

The comments came as the fund unveiled an offer of SEK4.50 for Agrokultura shares, only just above their closing price of SEK4.45 last night, although Steenord said that the bid has been prompted by regulatory rules, rather than a desire to purchase the whole of the farm operator and delist it.

Stockmarket rules typically require investors acquiring a large chunk of shares in a group to offer the same terms to other investors, to avoid an investor gaining control on the cheap.

Planting plans

Agrokultura said that "it looks positively on the new major shareholders' intentions" for the group, but added that it would release a fuller response to the bid within the next two weeks.

The company also revealed that it would, for its 2015 harvest, return to a greater emphasis on winter crops, sowing of which last year was hampered by damp conditions in Russia.

Winter crop plantings were pegged at "in excess of" 52,400 hectares, compared with 41,000 hectares for the 2014 harvest, with Russian area rising from 16,300 hectares to 25,900 hectares.

The group said it expected next year overall to harvest a "similar area as in 2014", ie some 120,000 hectares.

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