agrimoney.com | 2 November 2010
Mriya Agro Holding has chosen the "right time" to come to the market with its $300m bond issue, even though it may have to pay a hefty 11% on the money, analysts at Astrum Investment Management said.
The farm operator, which has a land bank of 220,000 hectares, will be helped in its bond issue by the "favourable environment" for primary bond issues, the Kiev-based broker said.
Appetite for lower-risk investments since the 2008 crash in share markets has attracted more money into bonds than ever before, raising fears indeed that the market has entered bubble territory.
Mriya itself, "one of the biggest and transparent agricultural companies in Ukraine", also has the benefit of "a high solvency level", with gross earnings covering interest payments on existing debt by a healthy margin, Astrum analyst Sergey Fursa said.
Mriya vs MHP
However, Mriya, which embarks on Wednesday on an investor tour, looked likely to have to pay an extra 1.5-2 points than some Ukrainian companies, thanks to the "very real" risk of harvest "volatility".
With its rating put at B- by Fitch on Monday, lower than some domestic agribusiness peers such as chicken giant MHP, "the Mriya issue's fair spread to MHP eurobonds is 150-200 basis points", Mr Fursa said.
"Taking into account the current price of MHP bonds, we expect that the placement yield for the Mriya issue is close to 10.5-11%."
West is best
Fitch's weaker rating for Mriya came despite it acknowledgement of the group's diversification across many crops, such as corn, potatoes, rapeseed and sugar beet, and its centre in western Ukraine, "where weather conditions have proved more stable for growing crops than in other parts of the country".
It also praised Mriya's "full application of corporate governance best practice", including its board set up.
Indeed, the group on Monday announced the appointment of two new independent directors: Thomas Putter, a former chairman and chief executive of Allianz Capital Partners, Germany's main private equity group; and Hans Christian Jacobsen, a former director of agribusiness at the European Bank of Reconstruction and Development.
Nonetheless, Fitch also noted that Mriya's expansion plans would mean negative free cash flow "at least for 2010 and 2011".
Mriya flagged on Monday that had regnotiated some terms of a $25m loan agreed in June from the International Finance Corporation, part of the World Bank, on grounds that the bond issue would leave it in breach of conditions of the borrowings.
