Ukrlandfarming, the Ukraine farming giant aiming to ramp up ag
exports to countries such as China, flagged Cargill's $200m purchase of an
equity stake as an "important step" in achieving its ambitions.
Oleg Bakhmatyuk - the Ukrainian gas and agriculture
billionaire who set up Ukrlandfarming, and remains its chief executive – confirmed
that Cargill had purchased a 5% stake, for a figure which has been reported at
"The agreement with Cargill indicates an important step for
Ukrlandfarming in developing our international presence and export potential,"
Kiev-based Ukrlandfarming highlighted co-operation in
grains, an area in which it last year flagged ambitions to export
500,000-700,000 tonnes of corn to China in 2013-2014.
"Ukrlandfarming is working with Cargill's grain division to
satisfy Cargill's particular needs for grains in Ukraine," the group said.
The two companies were working on areas "including logistics".
The comments come at a high-profile time for Chinese corn
imports, following the rejection of several US cargoes over claims of contamination
with a genetically-modified (GMO) variety not approved by Beijing authorities.
However, China has begun to accept non-GMO corn from
Ukraine, part of a $3bn loan-for-corn deal brokered by state companies in both
Mr Bakhmatyuk has been at the forefront of efforts to
promote ties in agriculture between China, a major crop importer, and Ukraine, a
major exporter of competitively-priced grains.
Ukraine has emerged this decade as a heavyweight corn
exporter, with its volumes forecast by the US Department of Agriculture to hit
18.0m tonnes in 2013-14, making it the third-biggest shipper behind the US and
Ukrlandfarming - which has plans to raise its cultivated
area to 670,000 hectares, and its elevator capacity from 2.1m tonnes - is also
a major grower of sugar beet, wheat and barley, besides owning a 66,000-head cattle
herd, including 23,000 dairy cows.
It also controls Avangard, the London-listed egg group,
which produces about one-in-three of all Ukraine's eggs.
The deal comes as Ukrlandfarming itself is said to be
considering a stockmarket flotation by 2015.
The Cargill deal "will help Ukrlandfarming with its
long-term expansion into Asian markets, will significantly improve its public
profile and increase the chances of a successful IPO," broker Foyil Securities
Foyil raised to $29.55, from $24.04, its target price on
Avangard depositary receipts, a proxy for shares, reflecting that the read-through
from the Cargill- Ukrlandfarming deal, at a multiple of 6.7 times 2013 earnings
before interest, taxation, depreciation and amortisation (ebitda).
This multiple "implies a 150% upside from Avangard's current
market price, given that Avangard shares are expected to be converted to Ukrlandfarming
shares at the IPO."
For Cargill, the deal represents the latest in a string of
investments, with the group last month unveiling E60m ($83m) plans for a
high-grade ethanol factory in Germany, and a $48m expansion at its largest
chocolate plant, in Mouscron, Belgium.
The group said that its 5% stake in Ukrlandfarming was "minor"
and "non-strategic", adding that the shareholding "does not convey any ability
to, nor does Cargill have any intention to, control, manage or operate the
business of Ukrlandfarming".
Ukraine has proven an appealing target for food-importing countries,
such as China, seeking to buy foreign land, with the former Soviet Union nation
last year easing restrictions on foreign ownership of farmland – contrasting
with tighter controls being introduced by the likes of Australia.
Last year, for instance, a Saudi Arabian consortium bought
Ukraine farm operator Continental Farmers Group.
Ukraine's financial hardships have limited access by its farmers
to domestic investment capital.