Agroton gets no rating upgrade from S&P

Standard & Poor’s confirmed the credit rating of Agroton (AGT PW) at CCC+, the agency said yesterday. S&P referred to expected negative free cash flow until 2014 related to anticipated investments into the purchase of new land and agricultural equipment. S&P’s downgrade of Agroton on May 15 was driven by a qualified opinion issued by the company’s auditors regarding unclear transactions with related parties that generated end-2011 receivables that totaled half of annual revenue. Since end-May, the company decreased doubtful receivables from USD 30.1  mln to USD 11.7 mln as of early September. Agroton shares have lost 20% since the May rating downgrade, while the benchmark WIG-Ukraine index has advanced 6% over the period.

Alexander Paraschiy: The news does not look encouraging for Agroton whose management was expecting a re-rating, but the event is of little surprise to the market as the company did not fulfill its promise to fully solve the payables issue by end-1H12. Given that the company did make significant progress on the issue and taking into account the company’s better than we expected grain harvest in 2012 (refer to our news of August 7), the company now looks much stronger to us, fundamentally, than four months ago. We confirm our HOLD recommendation for the stock, while we agree with S&P analysts that the company will likely need to seek refinancing for its USD 50 mln bond payable in 2014.