Russian agribusiness looks east for expansion funds
24.03.2015 / Agra Europe

Russian agribusiness Kuban Agroholding is in talks with Chinese investors in an effort to secure funds for expansion as it cannot secure affordable credit domestically and is cut off from western financial providers due to the ongoing economic sanctions.

Kuban Agroholding's new pigmeat complex in Krasnodar

Kuban Agro, owned by Russian billionaire Oleg Deripaska’s Basic Element group, is currently discussing the possibility of foreign strategic investors acquiring a minority stake in the business.

“Kuban Agro is looking for a partner to expand our existing capacities,” Andrei Oleinik, managing director of its Basic Element’s agricultural division, confirmed to Agra Europe. “We’re currently negotiating with several Chinese companies including China Investment Corporation (СIC).”

He said the additional investment will help the company expand production across all of its areas. “The company needs more funding to complete soy processing complex, to boost R&D in seed breeding and animal breeding through embryo transfer technology,” he said.

In an interview with Agra Europe earlier this year, Oleinik said securing loans from Russia’s Central Bank (at the then interest rate of 20%) would make agricultural projects in the country “unprofitable”. Russia’s Central Bank has since cut the rate - to 15% in February and 14% last week.

One of the largest agribusinesses in southern Russia, Kuban Agro is involved in a number of farm operations including cattle breeding, crop farming, sugar refining, seed processing and production, and grains storage.

Its assets include a slaughterhouse, 11 dairy farms, two pig meat facilities, grain elevators, seed plants, the Svoboda sugar factory and the Voskhod stud farm - a horse breeding facility.

Some local reports had suggested that Deripaska was considering 'selling' certain facilities to CIC and Singaporean investors last week but Oleinik insisted that the business is “not going to sell any assets” but rather a stake in the business that offers “less than a controlling interest”.

Grains production

Oleinik also told Agra Europe that he expects Russia’s winter grains production to fall considerably this year, compared with 2014, and again linked the decline to a lack of available credit.

He pegged 2015 total Russian grains output at 75-80 million tonnes, which would be down from around 100mt last year.

“The output fall is related to the price hike of the sowing season that, in turn, was influenced by expensive credit,” he said, adding that unfavourable weather conditions in Russia’s key agricultural regions of Stavropol, Vologda and Rostov-on-Don have also contributed to the reduction in crop yields.

Increased prices for farm inputs such as fertilisers and pesticides, as well as imported seeds - largely due to the depreciation of the local currency against the US dollar - have been cited by analysts as reasons why grains production could drop this season in both Russia and neighbouring Ukraine.

Oleinik expects Kuban’s total winter grains output to reach 255 000 tonnes this year, up from 211 000t in 2013 and 198 000t in 2012. “Despite drought during growing season in September and freezing temperatures in November, the weather in winter was mild and favourable for winter grains,” he said.

Profits boost

Kuban Agroholding recorded a 49% rise in net profit in 2014, compared with the previous 12 months, the company said in a statement last week.

Net profit totaled 1.1 billion rubles (US$28.5 million as per USD/RUB average weighted exchange rate in 2014), up from 743 million rubles in 2013.

While winter grains output grew last year, and sunflower production grew marginally to 25,600t from 25,500t, sugar production fell slightly year-on-year to 434,000t (from 450,000t) and there were also declines for maize (48,000t/59,000t) and soyabeans (21,000t/26,000t).

The company completed two key investment projects last year – an 8 400t slaughterhouse and a 50,000 head hog farm in Krasnodar – and going forward plans to focus on meeting Russia’s growing demand for locally-produced food and developing advanced laboratories for animal breeding and crop farming.

The article on the Agra Europe website