Mriya, the giant Frankfurt-listed wheat and corn grower in western Ukraine, is having its bottom line revamped, after admitting on Aug. 1 that it can’t make $32.6 million worth of interest payments on two eurobonds.

It cited its financial condition having “deteriorated in recent months as a result…of an increase in price of certain raw materials, a decline in the price of agricultural products and difficulty in obtaining working capital facilities due to the economic situation in Ukraine."

Late crop collection this year contributes to this too, added Olena Bilan, an analyst for Dragon Capital.

Like the rest of the liquidity-squeezed economy where access to capital debt and other sources of financing is often prohibitively expensive, the group said it would have “to take steps to restore its financial viability.”

Financial adviser Blackstone Group and Kyiv-based Dragon Capital, which underwrote Mirya’s 2008 initial public offering, will review the ongoing financial position of the group.

Blackstone didn’t respond to a Kyiv Post inquiry, while Dragon’s managing director Brian Best said that “external factors,” like access to affordable credit and low commodity prices have contributed to the hardships facing Ukraine’s promising agricultural sector.

Mriya marketing manager Iryna Stolyar wouldn’t provide comments to the Kyiv Post. Andriy Guta, a key shareholder in the group, didn’t answer a call placed to his mobile phone.

Mriya’s – which stands for "dream" in Ukrainian – below investment-grade corporate credit rating doesn't help to raising cheap money, while high inflation in Ukraine – estimated to reach 19 percent by year’s end – will surely not be accompanied by low lending rates.

Specifically, in two Aug. 1 notes to company debt holders, Mriya said it won’t make interest payments on its eurobonss – one worth $250 million with a 10.95 percent interest rate maturing in 2016, and another, which allowed company to borrow $400 million until 2018 under a 9.45 percent of interest.

The notes added that the “group expects to continue its business operations in the normal course.”

The announcement comes after the nation’s gross domestic product contracted by 4.7 percent in the second quarter. In an interview with Forbes Ukraine, the group’s deputy CEO Vladyslava Rutytska blamed the hryvnia’s 20 percent devaluation, the drop in GDP and the Russia-instigated war in eastern Ukraine for the company’s troubles.

Yet the company has faced hardships before yet succeeded in spite of them. Cultivating over 300,000 hectares, the Ternopil-headquartered farmer was established in 1992 when Ukraine was in much worse shape, considering Soviet-style corruption, hyperinflation and an underdeveloped banking system. Yet, the company has managed to succeed until now.

Moreover, Mriya's production facilities are located in a part of the country where fortunately, war remains a matter of discussion rather than bloody action. And despite currency devaluation, Mriya should be benefiting from grain export revenues.

In the Forbes interview, Rutytska talks about reshaping the business model, but doesn't go into details. The Kyiv Post tried to arrange an interview with any of Mriya's senior executives to let them explain the corporate crisis in depth, but they refused.

Mriya is a highly leveraged company compared to its Ukrainian and global peers – it heavily relies on borrowing money for working capital. Its chief financial officer Andriy Buryak lost his job on Aug. 1 – the day when the bondholder notes were issued.

Nevertheless, Mriya is facing a 4-year low on wheat prices, which is grown on 44 percent of its land. It currently sells for $200 per ton. Occupying 33 percent of what the company harvests, corn is selling at $143 per ton, a 5-year-low from $144.

Thus its undiversified production model is highly dependent on these two commodities with sugar beets and potatoes making up for the rest at 7 and 2 percent, respectively.

First quarter performance this year, thus, was $233 million of net losses, though last year's first quarter financial report revealed profits of $5 million. Net income for 2013 was $88.5 million. 

Mriya's shares on the Frankfurt Stock Exchange where 20 percent are in free-float fell by 39 percent since July 29. Four members of the Guta family, led by Ivan Guta, owns the rest of the shares. They hired New York-based Blackstone Group and Dragon Capital to help steer the company out of the crisis.

KyivPost