On Tuesday, Standard & Poor's Ratings Services said that it had assigned its 'B-' long-term corporate credit rating to large Ukrainian farming company. The rating was placed on CreditWatch with positive implications, the agency said in a statement.

The statement said: "We also assigned our 'B' long-term debt rating to Mriya's proposed $300 million senior unsecured bond issue with an expected tenor of five years. We have assigned a recovery rating of '4' to the bond, indicating our expectation of "average" (30%-50%) recovery for bondholders in the event of a payment default.

"We understand that the bond is not underwritten by the arrangers. The ratings on the pending bond issue are subject to the successful issuance of this instrument and our review of final documentation. Any change in the amount, terms, or conditions of the bond issue would have to be reviewed by Standard & Poor's and could affect the current ratings on the bond."

"The 'B-' long-term rating is based on our assessment of Mriya's business risk profile as "weak" and its financial risk profile as "highly leveraged"," Standard & Poor's credit analyst Anton Geyze was quoted as saying in the statement.

The statement said: "Mriya's credit quality is constrained by the company's aggressive expansion strategy and liquidity risks stemming from the substantial investment program, which requires external financing. The inadequate availability of medium-term financing in Ukraine, exposure to the volatile agribusiness industry, and geographic earnings and revenue concentration on Ukraine also limit Mriya's credit quality.

"Mriya's credit quality is supported by the company's modest debt burden and its position as a large player in the Ukrainian farming industry with a track record of profitable growth. Mriya boasts high margins of more than 50% benefiting from high-quality farmland and equipment, low labor and lease costs, and advanced crop cultivation and harvesting processes. The company's profitability exceeded 50% in 2007-2009.

"Mriya cultivates sugar beets, wheat, rapeseed, potatoes, and corn in four regions of western Ukraine, including the Ternopil Oblast, where the company has its headquarters. Its land under cultivation exceeded 218,000 hectares in 2010. Mriya leases the land it grows agricultural produce on, because Ukrainian regulations prevent wholesale ownership of agricultural land. The moratorium on land sales expires in 2012, but is subject to extension.

"Mriya is a family-owned company listed on the Frankfurt stock exchange. The Huta family, which dominates Mriya's board of directors, controls 80% of the shares in the company. Mriya is involved in related-party transactions with sugar factories also owned by the Huta family, to which it sells its sugar beet harvest."

"The CreditWatch placement indicates that we will likely raise the long-term rating to 'B' if the bond issuance is completed under the preliminary terms and conditions that we have reviewed," said Geyze said.

The statement said: "In our view, the pending refinancing, if successful, will likely improve Mriya's debt maturity profile and support its liquidity position. We expect to resolve the CreditWatch placement upon completion of the pending bond issue or, if the issue is delayed, within the next three months.

"We believe that Mriya's stated plans to use bond proceeds for its investment program are credible, based on its track record of profitable growth and improving corporate governance. The company has recently introduced new independent directors into the board. Further rating upside potential would hinge on the company's continuing its financial policy of maintaining a modest debt burden and managing liquidity prudently."

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