Fitch rates Ukraine's Agroton at 'B-'; Outlook Stable
2011-05-05 17:41:27
Fitch Ratings has assigned Agroton Public Limited (Agroton) Long-term foreign and local currency Issuer Default Ratings (IDR) of 'B-'. Fitch has also assigned a National Long-term rating of 'BBB(ukr)'. The Outlook is Stable, the rating agency said in a statement.
The Long-term IDRs reflect Agroton's above-average business risks, due to the strong cyclicality and seasonality of agricultural commodities, its weak free cash flow profile as a result of the large amount of capital tied up in working capital, its reliance on one geographical area in Ukraine and its small size, as illustrated by reported net sales and EBITDA for fiscal year ending December 2010 of USD97.1m and USD38.5m (before exceptional items), respectively. These factors are mitigated by the long-term growth prospects for the agricultural sector in Ukraine and Agroton's high output yields relative to peers and independent farmers.
The group's financial risk is considered high for the rating level, as the capital tied up in inventories and the expansion plan are likely to translate into negative free cash flows over the next two to three years. Fitch acknowledges the high degree of flexibility in the capital spending programme, which provides a cushion against unfavourable market trends. Furthermore, management's commitment to maintain a maximum total debt/EBITDA ratio of 2.0x (throughout the year) and inventories that can be liquidated with relative ease should the need arise, underpins the group's financial flexibility.
The ratings also reflect Fitch's expectation of a conservative financial policy, maintaining adequate liquidity reserves while minimising refinancing risk in the longer term. Moreover, the group has accessed equity capital, by way of two equity issues in November 2009 and November 2010, raising USD90m in aggregate, which was used to repay existing debt and fund working capital in the business. Fitch also acknowledges that the company demonstrates better corporate governance procedures relative to other Ukrainian peers, including two independent directors on the board and no related-party transactions.