The European Bank for Reconstruction and Development (EBRD) will extend $20 million of revolving credit to farm operator and agribusiness holder Ukrainian Agrarian Investments (UAI), $7 million more than it lent the company under a similar arrangement in 2014.
The loan is part of the bank’s initiative to stabilise agribusinesses in Ukraine, where it is extending loans that could be used to pay back agribusiness debts to short-term commercial banks, as well as run operations and restructure businesses, the bank’s senior advisor for external affairs in Ukraine, Anton Usov, told Agri Investor.
The EBRD provides financing in emerging markets with the “goal of fostering the transition to market economies”, according to its website. It has extended between €200 and €300 million of debt a year to agribusinesses in the Ukraine since 2010, except for last year when it loaned slightly under €200 million, Usov said.
“Agribusiness is the locomotive of the local economy,” said Usov, adding that businesses in several sectors are suffering from lack of access to liquidity. The agriculture and food industry makes up about 15 percent of the country’s GDP and provides significant employment, according to the International Finance Corporation.
UAI chief financial officer Alexandre Joseph, who joined the company in 2009, told Agri Investor that UAI was one of the few agribusinesses with reliable access to liquidity through the EBRD. “The liquidity crisis makes it much more difficult to find financing – you have to be a good player to get it from the commercial end as well … to survive you need to be low cost and low leverage.”
“Many companies have reduced their cultivation, are highly leveraged and can’t find a revenue facility. In many, [grain] stocks are being sold as quickly as possible.”
Following the Ukrainian crisis, which saw the country descend into an armed conflict and resulted in Russia’s annexation of Crimea, new foreign investment in the country dried up.
However, while local commercial debt has been difficult to secure, the EBRD has been able to continue financing the agricultural sector throughout the last three years.
“There wasn’t a dip in the debt we extended because of the crisis. That is because of the export potential [for the agriculture sector] in Ukraine,” Usov said, explaining that the bank also continued to see potential for future growth in the sector.
Joseph said that with access to liquidity, agribusinesses could still flourish in Ukraine. Commodity prices are about 50 percent cheaper than two years ago, Joseph said, adding that devaluation of the currency had brought down labour and operational expenses, which were also affected by lower oil costs and seed prices from Europe.
He said that in 2014 UAI had had $42 million in earnings before income, taxes, depreciation and amortisation (EBITDA). Its forecast net profits for were $25 million for 2015, $40 million before EBITDA.
“Two to three years ago many Ukrainian companies used to export to Russia. Certainly they have now had to look to other markets. They have had some success in the [European Union], but they have been very successful in Asia, Africa and the Middle East.”
Usov said that by diversifying to export to other regions, companies could spread their currency risk. However, apart from a deal signed between a local company and John Deere for a grain terminal in Odessa, he said new foreign investment in Ukraine had still not materialised.
The bank has been working with UAI since 2010, and extended a $40 million credit line in its first transaction in June 2011. UAI’s majority shareholder is the Renaissance Group, with other major investors including an unnamed Chilean billionaire and South Africa’s Standard Bank. The company’s main activities are in wheat, corn and sunflower cultivation.