Agricultural sector of Ukraine mainly depends on the global situation - Dragon Capital
The microeconomic and political situation worsening in Ukraine caused the national currency fall bring worries to the operators on the real condition of the economics. Most of all the operators are worried on the import dependent industries which still allow the expot-oriented industries to cover the costs with currency incomes. About the impact of the situation in the country on the agribusiness developing will tell the Director of the Investment Bank Department of Dragon Capital Yuriy Astahov.
- What are the main reasons causing the agricompanies' bankruptcy?
The major reasons are the low operative efficiency of business due to the week control procedures and stealing, property assets exhaustion, and the inefficient technologies appliance. Besides unfavorable weather conditions and high leverage on the percentage rate which causing the working capital deficit and the probable further default.
The additional factor negatively impacting on the industry development is the high cost of debt financing due to the deficit of liquidity in the bank system.
- How do you estimate the impact of economic and political situation in Ukraine on the agricompanies bankruptcy dynamics?
As for crop production business, of all the segments of the agroindustrial sector it is less liable to the influence of economic situation owing the fact that grain prices are stated by the global market. Even if there is the Hryvnya devaluation the grain domestic prices face an increase owing the USD rate increase, as it was in 2008. At the same time meat producers suffer from the currency devaluation. The reason is that the end products are to be sold on the domestic market for the national currency which is limited with the prices fast increase. At the same time the production prime-cost is rising causing the business profitability decrease.
Thus, the main reason of bankruptcy is the bad conjuncture and grain low prices, companies financial instability having a lot of debts in USD.
- As for the recent economical and political events in Ukraine, what is the impact of them on the agricompanies activity?
It is necessary to note that the events happened in our country will not have negative impact on the agrarian sector. As it was stated above, it depends on the global conjuncture. As for the crop production, there are prime-cost and incomes depending on the USD rate. Costs increase to be compensated by the incomes increase. The negative factor is the USD debts, as it was in 2008-2009. Besides their high cost is making them unavailable for small-scale enterprises especially for those which still had no stable relations with banks but needed to refinance debts.
- So the companies exporting own products are able to cover costs owing the USD incomes. How will the Hryvnya devaluation impact on the agricompanies realizing products on the domestic market? And how will it impact the agricultural producers purchasing import crop protecting agents, seeds, machinery and other?
As for cattle-breeding products producers realizing their commodities on the domestic market it is necessary to note that the prices for their products will face costs increase. As for crop producers the imported commodities (plant protecting agents, seeds and other) will be more expensive and have the negative impact on the prime-cost, but the incomes to compensate it. Besides due to the import of most machinery and elevator equipment it is necessary to expect the investment program slowing by the agrarians.
- How do you estimate the investment attractiveness of the Ukrainian agriculture to date?
In total despite the economical and political situation in Ukraine, the domestic agribusiness is still interesting for financial and strategical investors. First of all it is most attractive for long-term investors.
- Another important subject is the IPO realization by the agrarian companies. Can the unsuccessful IPO cause bankruptcy? What are the risks of its realization
The possibility of IPO realization is based on the macroeconomical and political factors. They show the direct influence on the investors mood. So until the situation stabilization, until the new government show its workability, until the country receives or is being guaranteed to receive financing from the western countries, it is hard to persuade the Western investors to purchase the companies' stock and realize the IPO. But I believe in the first have there is the chance to face the Ukrainian companies disposal.
Interviewed by Alina Styozhka
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