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Ukrlandfarming flags Cargill help for export aims

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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 $200m.

"The agreement with Cargill indicates an important step for Ukrlandfarming in developing our international presence and export potential," he said.

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".

China-Ukraine ties

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 countries.

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 Brazil.

Flotation plans

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 said.

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."

'Non-strategic'

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.

By Agrimoney.com

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