Industrial Milk places UAH 200 mln bonds, raises land bank 1.3x

Industrial Milk Company (IMC PW), a farming company with assets in northern Ukraine, announced yesterday the completion of a bond placement and new acquisitions. A subsidiary company placed local two-year bonds (USD-indexed) for UAH 200 mln (USD 25 mln) with a 14% coupon. In addition, the company’s subsidiaries completed two deals to acquire companies that have lease rights for a total of 18,500 ha, which raises Industrial Milk Company’s land bank under control 28% to 82,690 ha (+38% YTD). The land banks of both acquired companies are located close to Industrial Milk Company’s existing clusters in Sumy and Poltava regions. The company provided the volume of one of the deals: USD 10.4 mln for a company leasing 14,500 ha in Sumy region.

Alexander Paraschiy: We believe both of the news are encouraging for Industrial Milk Company stock. The bond placement will allow the company to replenish working capital to potentially get better agro product pricing (e.g. by selling them off-peak season), with no harm to the company’s leverage: debt/equity would grow from 0.23x (as of end-1Q12) to just 0.46x following the bond placement. While the news of the 18,500 land acquisition is not new (the company preannounced the deal in April, see our news of April 27), the revealed deal price (implying USD 717/ha, roughly 45% below our estimate of the fair value of land in Sumy region) looks value accretive for the company and might be rewarded by the stock market.