Ukraine: MHP feeds appetite for farming

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By:
Guy Norton
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Bankers say there will be further equity capital markets issuance from farming groups in Ukraine in the coming months.

Fund managers are keen to increase their exposure to agriculture, which, thanks to surging global demand and soft commodity prices, is emerging as a key investment theme in central and eastern Europe.

"We think that 2008 will be a landmark year for share issues by agricultural groups in Ukraine," says Tamara Levchenko, agriculture analyst at leading Ukrainian investment bank Dragon Capital. Blessed with an abundance of highly fertile black earth farmland, Ukraine is increasingly seen as a key player in global agriculture, a status that has been bolstered by the country’s accession to the World Trade Organization.

The latest Ukrainian agribusiness to tap international investors is Mironovskiy Hleboproduct, which started trading on the London Stock Exchange in late May after raising $371 million in an IPO, lead managed by Morgan Stanley and UBS. The transaction is the largest agriculture-related play from the country to date. "Vertical integration has been the recurring highlight among investors during the MHP roadshow," says Frances Fahey, managing director, equity capital markets at UBS in London. "MHP’s business model not only allows it to enjoy full control over its operational supply chain but also delivers the ability to mitigate input cost volatility."

MHP is Ukraine’s leading poultry producer and is benefiting from growing meat consumption in Ukraine as a result of rising incomes. It has also diversified into grain production, which will enable it to supply its own feedstock for its poultry business. In an added bonus, the company uses the droppings from its chicken farms to fertilize its fields. MHP is merely the latest recruit to a growing legion of Ukrainian agribusinesses that have raised capital across Europe in recent months. These include cereal producer MCB Agricole, which listed in Frankfurt in March after a €37 million private placement via Ukrainian investment bank Concorde Capital. The same month, wheat and oilseed rape grower Landkom International, which is listed on London’s junior market AIM, raised a further $23 million following its $111 million IPO in November 2007. Sugar company Astarta and sunflower oil group Kernel have listed in Warsaw.

Richard Ferguson, a senior analyst at Nomura in London, says that although the prices of soft commodities have weakened in recent weeks, food security is increasingly rivalling energy security on the global political agenda. Governments will therefore seek to build strategic reserves to ease concerns about food shortages, which will help to support prices at levels that will remain high.