News
07.04.2011
Ukraine: the hunt for corporate credit
How does a little-known Ukrainian company with big ambitions raise money when the country is still strugging with the after-effects of the global financial crisis?
By paying a chunky premium, that’s how. For Mriya, a farming group with 240,000 hectares in western Ukraine, a combination of rapid sales growth and chunky profit margins means that it is worth raising $-denominated loans even at 11.25 per cent. But the numbers highlight how hard companies in financially-vulnerable countries have to work to finance themselves.
Founded in the early 1990s, Mriya has developed into one of Ukraine’s largest agricultural businesses, employing 1,600 and making EBITDA profits last year of $158.4m on revenues of $297.3m – a whopping margin of 53 per cent. While Mriya has benefited from soaring world food prices, it has worked hard to boost growth (revenues rose 55 per cent in 2010) and maintain margins (over 50 per cent in each of the last three years).
Founders Ivan and Klaudiya Huta and their sons run the business and control the family’s 80 per cent shareholding. The remaining 20 per cent was floated in 2008 on the Frankfurt stock exchange via a private placement, at the equivalent of €2.8 per GDR. Despite the global crisis and the general caution over Ukraine’s finances and over its interventionist farm policies, the GDRs now trade at €7.25, valuing Mriya at around $1.1bn.
`The share placing aside, the company has financed itself in the past largely through its own resources and Ukrainian bank credits. But Andriy Buryak, finance director, told beyondbrics that early last year Mriya decided to switch its loans to international lenders – to save money on interest charges of 18 per cent on its $80m-worth of Ukrainian Hryvnia credit.
It borrowed $50m from the World Bank’s International Finance Corporation at 5-6.5 per per cent over Libor and has just secured a $25m credit at 6.5 per cent from the European Bank for Reconstruction and Development.
These loans from multilateral institutions helped Mriya secure a better hearing from commercial lenders and this week it completed a $250m eurobond with a yield of 11.25 per cent. “We are going to repay all our Ukrainian debt,” says Buryak.
According to data from UBS, the joint lead manager with Bank of America Merrill Lynch and RBS, Mriya is priced at a slight premium to a $200m Eurobond from Avangard, another Ukrainian farm company, which trades at around 10.5 per cent.
Yields on Ukrainian corporate credits are pushed up by the risk-premium attatched to Ukrainian sovereign bonds, with the benchmark 2021 bond yielding 7.48 per cent. top-notch Ukranians groups with established records in the markets, headed by Metinvest, billionaire Rinat Akhmetov’s group, and poultry giant MHP yield 8-9 per cent.
Mriya’s CFO Buryak said the company considered a further share offering but the Huta family shareholders decided that, given difficult market conditions, it was better to wait and pay a bit more for credit than give away equity.” But a London listing, perhaps later this year, remains “in the pipeline”.
Buryak says Ukraine’s small and medium-sized companies have many difficulties raising money. Not only is bank finance expensive, it is only available for short terms of 12-18 months and with heavy collateral. Agricultural companies cannot mortgage land because they generally don’t own it. Mriya’s own holdings are on 10-year leases.
Lease finance is one option, he says. But going to the international markets is only possible for big groups such as Mriya. “It’s not a cheap process. And you can’t issue a eurobond for just $50m.”
Materials Financial Times
