Astarta buys sugar plant from Kernel

Ukraine’s leading sugar producer Astarta (AST PW) completed an acquisition of the Orzhytsa sugar plant from Kernel (KER PW), both companies reported on September 19. The sugar plant is located in Ukraine’s Poltava region, near Astarta’s largest land plots. Its processing capacity is 6 kt of sugar beets per day, or about 15% of Astarta’s total.

The deal’s value was not disclosed, but Kyiv’s Kapital newspaper reported in June its value ranged between USD 10–12 mln, citing insiders. Earlier this year, Kernel sold another sugar asset, the Ternopil region’s Chortkiv sugar plant with a processing capacity 7 kt of sugar beets per day, for about USD 33 mln.

Alexander Paraschiy: Rumors of the deal spread throughout the summer, and Astarta reported it was close to completion on August 2, so the news is not a surprise.

We see that the price range for the deal reported by Kapital is realistic, even though it’s a deep discount to Kernel’s price for the Chortkiv plant. Firstly, unlike Chortkiv, the Orzhytsa sugar plant looks not ready to produce sugar this fall as it had not asked for and has not received a production quota for 2013. Secondly, there are only two sugar market players remaining in Poltava region, Astarta and Ukrlandfarming, but given that the latter decided not to produce sugar this season, Astarta remained the only possible bidder.

We do not expect the deal will have any visible effect on the balance sheet and cash flow of both Astarta and Kernel. At the same time, we believe the deal is value-accretive for Astarta, which is gaining more market power on the local sugar market this way.