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16 July 2019

Investments & finances

The issue of acquiring financing for purposes of business development or working capital service remains relevant among farming companies. Requirements of financial sustainability of business and raising capital as an instrument to fortify economic feasibility, financing issues continue to be important to farming. Wide range of risks in agro creates additional cost of financial resources for farmers, as well as agricultural companies. Taking into account the diverse and unpredictable climate of Ukraine, entrepreneurs and managers pay high attention to the field of credit, finances and investments. 

2018 left considerable challenges agribusiness unsolved. Although, there have been a further moderate improvement in political and macroeconomic situation in Ukraine, issues of high debt burden and ability of lenders to service debt remain an important problem, both in production and financial sectors.

In 2018 agricultural producers had several options to raise capital, for example through such instruments as banking credit, investments, agricultural receipts, commodity credits and bills.

BANKING CREDITS

As of February 2018, a number of licensed banks was 81, 23 of which are financed exclusively by foreign capital, 41 – by Ukrainian capital and 17 banks with both, Ukrainian and foreign capital. In comparison to the same period of the last year, the total number of banks on Ukrainian market was reduced by 7 banks. This was a result of the sanitation policy which is being conducted by the central bank. Although, one should not expect a dramatic reduction in number of banks in the future. 

Leading banks in agro credit market are CREDIT AGRICOLE, UKRSIBBANK, AVAL, PIRAEUS, ALFA BANK, OTP BANK and AGROPROSPERIS BANK.

Major trend in agro banking industry is operational capital financing, for example, demand for PPMs, seeds, fertilizers and fuels. Bankers are oriented to credit firms producing agricultural commodities as grains, cereals or oilseeds most common in Ukraine.

Commenting the banking "cleanup" campaign in Ukraine, bankers highlight liquidity stabilization, despite of positive short-term achievements, demand for loans still fluctuates in limits of existing macroeconomic and political framework. Demand for leasing and demand for operational capital service financing are already covered with banks’ credit resources, which indicate limits for a rapid development of loans portfolio.

Number of banks in Ukrainian market

Source: National Bank of Ukraine

In the structure of loans that were issued to non-financial corporations, divided by type of economic activity, prevail those received by the sector of wholesale and retail – they amounted to 34% of the total loan value. The sector of agriculture, forestry and fisheries takes up 8% and is at the same level as the food processing sector. Thus, the total agri-food sector ranks third among all sectors of Ukraine’s economy.

Monthly value of new credits in agriculture of Ukraine, mln UAH

Source: National Bank of Ukraine

In the first half of 2018, the price for loans was volatile, fluctuating within 17.9-18.2% for loans in national currency, between 18.3-19.7% for overdraft in national currency, and between 6.3-11.8% for overdraft in foreign currency. Such high price for loans in domestic currency directly results from the currently high discount rate of the central bank, which in turn, is the result of the inflation targeting policy.  

Credit rates in farming, %

Source: National Bank of Ukraine

DIRECT INVESTMENTS OF LEADING INVESTING COUNTRIES INTO STATUTORY CAPITAL

 

Among the countries that lead in foreign direct investments into statutory capital of Ukrainian enterprises the structure remains the same. Cyprus remains the leading country, second largest FDIs investing country is the Netherlands.The third place still occupies Russia. 

Source: State Statistics Service of Ukraine

OVERALL INVESTMENTS INTO UKRAINIAN ECONOMY

 

Despite the fact that the share of agriculture in FDI remains the smallest when comparing to that of retail/wholesale, industry or construction, it has been increasing during the last year. In comparison to 2016, FDIs into the Ukrainian agriculture have grown by 23,8%. The industry sector has as well seen a minor increase in FDIs – first since 2014. Whereas the volume of FDIs in retail/wholesale and construction have continued to decline, though at a much slower rate.

 

Overall investments into Ukrainian economy, mln USD

Source: State Statistics Service of Ukraine

UKRAINIAN AGRO COMPANIES MARKET CAPITALIZATION

As of September 2018, in comparison to the same period last year, the aggregate market capitalization of Ukrainian public agricultural companies has decreased – down to 2.96 billion USD (from 3.49 billion USD). The company MHP is the leading company with of 1.24 billion USD but since the beginning of the year it shows a weak negative tendency in its market capitalization. 

Ukrainian agro companies market capitalization, mln USD

Source: UCAB's estimations.