Agroton defaults on bond coupon, worsens outlook for 2013

Farming company Agroton (AGT PW) reported on July 16 it’s unable to pay a USD 3.1 mln coupon for its USD 50 mln notes that mature in July 2014. The company said it’s considering amendments to its bond terms.

Among the key reasons for the default cited by the company was frozen cash at the Bank of Cyprus. Of USD 4.5 mln deposited, the company had to convert USD 1.6 mln into equity and write off another USD 1.0 mln, with the remaining USD 1.9 mln still being inaccessible.

Besides trouble with finances, Agroton revealed a pessimistic outlook for its 2013 harvest, expecting its sunflower harvest area at 35K ha (-9% yoy) and yield at 1.5 t/ha (-17% yoy). The company expects its wheat harvest at 34K ha (-21% yoy) and yield at 2.7 t/ha (-16% yoy) in 2013. It didn’t disclose its planted area. Agroton explained the yoy decrease in expected harvest area by citing dry weather in its farming regions in autumn 2012 and spring 2013. Combined with expected lower crop prices, these plans should lead to a significant deterioration in the company’s P&L and operating cash flow this year.

Alexander Paraschiy: With these figures, the company is essentially reporting it is close to bankruptcy, and that’s despite its strong 2012 harvest. Recall, Agroton was the only listed Ukrainian farmer that reported an increase in crop yields in a year that was plagued by drought. With that harvest and high prices for sunflower and wheat in 2012, the company had to also show exceptionally good financials for 2012 and should have accumulated enough cash not only to smoothly service its debt obligations, but also to expand its agricultural operations (even though some of its cash has been frozen in Cyprus).

It seems like the company did not intend to increase its planted area in the 2012/13 season, and neither bad weather nor March’s cash restriction can be considered an adequate excuse for a 15% yoy decrease in planting area for its two key crops. Moreover, it looks like the company has some internal governance problems that prevent it from delivering value for equity and bond holders.

With the outlook for 2013 harvest, the company indicated it will not be able to repay a USD 50 mln bond maturing next year: it expects to generate just USD 38 mln from the sales of its two major crops to be harvested in 2013.