As UAIndex has shown of -0.49 decline after yet another trading session bringing it to -15.56% of capitalization decline over the previous month we cannot help but wonder whether Ukrainian agro holdings are struggling with foreign investors in terms of their potential to grow and bringing interest. We discovered that recently positions of Ukranian agrarian companies, especially in Poland, WSE have been shaken. There are various reasons to such situations and we would like to mention several. Agroton, publivly traded company at WSE failed to present adequate documents for USD 66M revenue reported by the company as well as exporting documentation was filed with mistakes. As the result, company changed its auditor from Baker Tilly to KPMG and company’s capitalization fell 55.33% in monthly terms. Communication of Ukrainian management with investors has turned into real problem as Kernel reported doubtful data regarding its sunflower production and KSG Agro did not report financial results blaming its auditor. It is becoming clear recently that such approach woll be extremely harmful not only to the already existing public companies, but as well to those planning to use West (Warsaw in particular) as an investment source.

On the other hand, there is China. Chinese growing capacities and demand for agricultural products are on the rise at the unbeatable pace. What is even more important China is ready and is willing to invest in countries to satisfy its demand. Africa has seen China as a major foreign investor over the past couple of years as Russia and Belarus have seen increase in Chinese investments. Ukraine is a potential partner for China as well as most recently country announced its intention to invest up to USD 3Bn in agrarian sector of Ukraine. At the same time, we keep in mind USD 4Bn agreement signed by Oleg Bahmatyuk, owner of Avangard and Ukrlandfarming. In case China goes through with those investment volumes, very soon Ukraine will see a major boost in agricultural production.

AgroInvest comment: We still see political risks present in Ukraine, overregulation, corruption and lack of progress in land reform as major sources of problems for those investments to be made. Therefore it makes it nearly impossible to make predictions regarding development of the current situation. The only thing that is clear is that Ukrainian holdings cannot afford losing trust of investors, as they are the main, if not the only one, source for investment funds.

For more detail please refer to the UAIndex Daily (May 30 issue).

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UkrAgroConsult