Ukraine prosecutors search Astarta office, production continues

The headquarters of Ukrainian farmer and leading sugar
producer Astarta (AST PW) was searched at the initiative of the Prosecutor
General’s Office on Sept. 6, the company reported the same day. The bank
accounts of some of its subsidiaries have been blocked, the statement said, yet
production is continuing as usual. The company said it considers the actions of
law enforcement bodies are ill-grounded and excessive, expressing its hope that
all the restrictions will be eased in a couple of days. “We are confident that
this won’t prevent us from reaching high production targets during the
important period of sugar production,” the company stated.

A Kyiv local court ruled on Aug. 30 to block the
accounts of three Astarta subsidiaries as a part of an investigation of a
large-scale case of alleged tax evasion, according to a state register of court
rulings. The details of the investigation are not yet clear. All we can
understand from the ruling is that prosecutors are examining the sale of
ammonia of Astarta’s trading subsidiary, to its five farming and processing
subsidiaries, in the amount of 85 kt at a gross value of UAH 715 mln in
2016-2017.

Alexander Paraschiy: It does not
look normal that the searches are being conducted at the most important time of
the year for Astarta: when the company is starting its thee-month sugar
production campaign and is activating all its sugar plants (just a day before,
Astarta reported on the commissioning of its first sugar factory for this
season). Such timing raises suspicion that prosecutors might be aiming at
causing maximum damage to the company’s operations.

Meanwhile, we have no other choice but to believe that
all these actions won’t harm Astarta’s operations, as the company claims. From
what we see as the prosecutors’ background for the investigation, it is hard to
find any crime in selling ammonia among Astarta’s subsidiaries for about USD
280/t, which more or less corresponds to market prices in the region.

Searches by law enforcement is not something
extraordinary for Ukraine. Recall, searches were performed in the headquarters of Kernel (KER PW) in May 2016 and offices of JKX Oil & Gas (JKX LN) in June 2016 and again later, with no
damage neither to the companies’ operation nor their share prices. Therefore,
we do not expect negative consequences for Astarta either.