May 14, 2010
By Roman Olearchyk
Even in Europe’s most depressed large economy, there are a few shafts of commercial light. Ukraine, where gross domestic product fell last year by a whopping 15 per cent, is witnessing a flurry of investment into its promising agricultural sector.
Businessman Oleg Bakhmatyuk is mulling whether to take his farming company – Ukrlandfarming – public after this month sealing a $1bn valuation for Avangardco Investments. Egg producer Avangardco – which Bakhmatyuk owns – listed a 22 per cent stake on the London Stock Exchange. Now investment bankers in Kiev said Cyprus-registered Ukrlandfarming could raise $50-80mn via an IPO on London’s AIM this year.
A handful of Ukrainian agribusiness companies have gone public on European exchanges in recent years, including sunflower oil producer Kernel, as well as farming companies Landkom and Mriya Agro.
But apart from large-scale investments brought in by multinational agribusiness giants, including Cargill and ADM, the inflow of investment into promising domestically-owned companies is only starting to trickle in.
Ihor Petrashko, executive director in Ukraine for investment bank Troika Dialog, lead manager for Avangardco’s listing, said: “It demonstrated a strong investor appetite for Ukrainian agribusinesses, which could raise in the order of $1bn this year via debt and equity deals. But much depends on market conditions.”
In the long term, even more depends on the investment climate in Ukraine, which has long bragged about the potential of its black earth country.
Bakhmatyuk said investments could help transform Ukraine, already one of the world’s top grain market players, into a “major supplier of high-protein based foods.” Agribusiness expert Andriy Yarmak said that “with investments, Ukraine could double its recent annual harvests in the order of 50 million tons, and “become one of the top exporters of meats in about 10-15 years.”
Investment is where the opportunity lies for investors, but it’s also the catch, as Yarmak points out.
For Ukraine to become a global farming and food powerhouse, it needs to attract much more than the estimated $5bn in foreign direct investment lured into its agribusiness since independence in 1991. It needs about $20-25bn of investments, says Yarmak.
A full-blown investment and production boom, Yarmak warns, will only come after the nation improves its notoriously horrible investment climate and sanctions the sale of its rich agricultural land to foreign investors.
The existing moratorium on agriculture land sales, for example, limits the ability of farmers to mortgage their land and borrow from creditors.
So while there is plenty of potential in Ukraine’s black earth, investors will have to cut through plenty of red tape to get to it.