Uruguay: UAG waits for valuation rebound before IPO
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Uruguay: UAG waits for valuation rebound before IPO

Suppressed valuations of companies in stock indices across Latin American are keeping IPO candidates at bay and the prospects for fresh issuances are remote, according to equity bankers.

One such candidate, Union Agriculture Group, still hopes to list internationally following its recent acquisition of El Tejar, which made the company the leading agriculture producer and landowner in Uruguay. However, Juan Satori, UAG’s executive chairman, says prospective valuations from any IPO at the moment are lower than the multiples on offer to the company through private sources.

"We can get higher valuations through alternative sources than we can get through an IPO," says Satori, who had mandated Credit Suisse and JPMorgan to lead an IPO on the New York Stock Exchange in 2013. "We are still in touch with [those banks], but we are not sure if we will change the syndicate [when UAG re-mandates the IPO]," he says.

UAG bought 100% of El Tejar, which owned about half of the 67,000 hectares of farmland it operated, bringing the total area of farmland operated by UAG to 172,000 hectares.

David Creighton, president and CEO at Cordiant Capital, which had previously loaned El Tejar $11.3 million for land acquisitions, says that El Tejar decided to sell to its larger competitor after failing to buy as much farmland as it hoped to, as land valuations soar.

The rising value of agricultural land is problematic throughout the region, says Creighton: "Everyone was putting money into agricultural land and then New York hedge funds began to get involved and there was a bit of a bubble going on." He notes, though, that there are different valuation issues at play across Latin America, with Brazil opening new land, but with valuations restricted through high infrastructure costs.

UAG’s Satori says that half of the company’s returns are currently generated through appreciation of land values, although that is expected to lower to one-third in coming years as the rate of appreciation slows in Uruguay and the economies of scale of the enlarged farming operations are monetized. "We now have half a billion dollars deployed in our operations," he says. He adds that the company doesn’t expect to buy any more farmland in Uruguay or to expand outside the country. However, he expects the attractiveness of Uruguay’s agricultural sector to assuage any concentration fears that potential IPO investors might have. "Not many countries with quality agricultural land allow open foreign participation in the sector," he says. "Uruguay also has attractive tax, regulation and, very importantly, political risk – just look at what is going on in Ukraine."

Meanwhile, despite Creighton’s belief that land valuations are in bubble territory, the company is committed to the industry and has diversified investments to include farming of commodities as well as investments in biofuels, phosphates and agricultural infrastructure. The company also part-invested in a $100 million fund for Fiagril Participações, which will finance the purchase of seeds and fertilizers to sell to farmsin the farming heartland state of Mato Grosso. Creighton says that private financiers such as Cordiant have a big opportunity to operate in these types of agricultural sub-sectors, where the traditional banks are currently not able or willing to participate despite attractive potential returns.

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