A Sweet Deal on the PFTS

| Business Ukraine
In an IPO that placed 20% of its shares on the PFTS last week, major Ukrainian sugar manufacturer UkrRos raised USD 42 million which it plans to invest in an ambitious expansion programme

In an IPO that placed 20% of its shares on the PFTS last week, major Ukrainian sugar manufacturer UkrRos raised USD 42 million which it plans to invest in an ambitious expansion programme

On July 23, Ukraine’s second largest sugar producer Sugar Union UkrRos became available for trading in the PFTS. This new listing comes amidst a booming PFTS which has seen over 100% index-growth in the first six months of 2007, making it one of the best performing stock markets in the world.

The deal put 20% of the company’s shares in the IPO, which raised USD 42 million, giving UkrRos market capitalisation of USD 210.3 million.

In 2006, UkrRos represented 10% of total domestic sugar production. The company produced 250,000 tonnes of sugar last year on a total of 40,000 hectares of land and had net sales of USD 155 million and net profits of USD 37 million.

UkrRos aims to double market share

According to a press release covering the launch, the company’s development strategy for the 2010/11 season estimates an increase in land under tillage to 140,000 hectares, a doubling of the companies share in Ukraine’s total sugar production to 20%, and a boost in net sales to USD 265 million.

Brian Best, Director of Investment Banking at Dragon Capital, the lead manager and sole book runner for the placement, said in a release: “The high demand for shares in the company was stimulated by factors such as the forthcoming consolidation in the sugar industry in Ukraine, which should attract large multinational players to the market, as well as the expected privatisation of land currently used in agriculture. And naturally investors have taken into account the strong position of UkrRos in Ukraine’s sugar industry, having more than 10 years of experience working in the market.”

UkrRos Supervisory Board Chairperson Serhiy Fedorenko said in a separate press release that the company plans to invest the proceeds from the share placement to shortly expand its land under lease from 40,000 hectares to 70,000 hectares, modernise its sugar refineries to make them more energy efficient, and bring the quality of its products up to European standards.

New listing good for PFTS

According to Oxana Kozachok, Analyst at Dragon Capital, the listing will also benefit the PFTS. “Looking at statistics for Monday, the turnover size of this deal was 88% of the total turnover for that day. This is very good news as it brings new companies to the market which will increase volumes on the PFTS,” she said.

New listing on the PFTS have been seriously limited this year as many Ukrainian companies have shown a preference for floating abroad either in London, Frankfurt and now Warsaw, such as Dragon Capital’s Real Estate Fund on the LSE’s AIM, and Ferrexpo listing on the LSE main market. The main reason for Ukrainian companies preferring to launch an IPO abroad is the limited liquidity of the PFTS.

A very significant factor in the UkrRos IPO was that all the investors were foreign. According to the Dragon Capital press release, the placement attracted over 20 investment funds and private investors from across Europe and the United States. This reflects the immaturity of the local market, and shows that retail investors are still very limited in Ukraine. However, the development of asset management business this year is a very positive sign that things are improving.

Kozachok said: “Each year there will be a big step forward in asset management funds operating in Ukraine, and we expect to see many more products come onto the market as the PFTS becomes more liquid. We also expect that as more companies enter the PFTS and more information is released, investors will look to the financial market rather than real estate because currently the yield in financial markets is very strong while real estate is slowing down.”

More placements and IPOs are expected to come to Ukraine by the end of the year, but fulfilling the requirements means serious restructuring for many Ukrainian companies which can take months or even years. “In order to make a company public, a lot of time is required to make legal restructuring, financial plans, strategy, audit and improve corporate governance. A lot of deals are in the pipeline and some will be coming shortly,” said Kozachok.