Court allows NBU to foreclose Avangardco egg farm

A Kyiv appellate court ruled on Feb. 6 to satisfy the
claims of the National Bank of Ukraine (NBU) and allow its foreclosure on real
estate assets belonging to leading Ukrainian egg producer Avangardco (AVGR LI,
AVINPU), the oligarh.media news site reported on Feb. 20. The foreclosed asset
has been identified as the Kirovsky laying hen farm and related infrastructure
located in the Kirovohrad region.

The asset was used as collateral under a UAH 200 mln
refinancing loan that the NBU provided in 2009 to Finansova Initsiatyva bank,
which was controlled at that time by Avangardco top shareholder Oleg
Bakhmatyuk, according to the court’s ruling. The bank was declared insolvent by
the NBU in 2015. The total amount of the NBU’s claims under the loan is UAH 219
mln. The court allowed the NBU to foreclose the asset and sell it though public
auction.

As of 2017, Avangardco operated 13 laying hen farms at
a total laying hen capacity of 21.7 mln (its end-2017 laying hen flock was 9.3
mln). The Kirovsky farm’s capacity is 0.71 mln laying hens (based on 2013
data), which is about 4% of Avangardco’s total.

Alexander Paraschiy: Avangardco’s
likely loss of the Kirovsky asset is not very material for its business, in our
view. Most of its end-2017 laying hens (84%) were concentrated at two modern
farms, Avis and Chornobayivske, meaning the remaining 11 farms (including
Kirovsky) accounted for just 16% of the laying hen flock ( though their total
laying hen capacity was 48%). That suggests that the contribution of the Kirovsky
farm to Avangardco’s egg production is no more than 2% currently.

At the same time, the NBU’s court victory is just the
beginning of the story. The total debt owed by Bakhmatyuk’s two previously
controlled banks to the NBU exceeds UAH 10 bln, and other assets of Avangardco
(and Ukrlandfarming) could have been pledged under the NBU loans. If NBU’s
other litigation is successful, Avangardco and Ukrlandfarming (UKRLAN) will
continue to lose assets. Consequently, the recovery value of their Eurobonds may
evaporate.