TEXT-S&P affirms Ukraine's Agroton Public at 'CCC+'

(The following statement was released by the rating agency)

Oct 01 - Overview

-- Ukrainian agricultural producer Agroton Public Ltd. (Agroton) has made progress collecting accounts receivables, the recoverability of which was questioned by its previous auditor.

-- We are affirming our 'CCC+' ratings on the company and removing them from CreditWatch with developing implications.

-- The stable outlook balances the significant cash supporting Agroton's liquidity over the next 12 months against the difficulty we believe it may have refinancing or repaying its bond maturing in July 2014.

Rating Action

On Oct. 1, 2012, Standard & Poor's Ratings Services affirmed its 'CCC+' long-term corporate credit rating and senior unsecured debt ratings on Ukrainian agricultural producer Agroton Public Ltd. (Agroton). At the same time, we removed the ratings from CreditWatch, where we had placed them with developing implications on May 15, 2012.


The rating affirmation follows the progress Agroton has made in collecting its receivables, the recoverability of which were questioned by its previous auditor Baker Tilly Klitou. The collection of these accounts receivable nevertheless took more than nine months, which is longer than we had originally estimated. We believe that the process was so protracted because of the company's significant customer concentration as well as what we view as the company's risky trading policies. We also consider that the somewhat limited transparency of the company's plans and its evolving corporate governance weigh on its credit quality.

The ratings continue to reflect our assessment of Agroton's "weak" business risk profile and "highly leveraged" financial risk profile, as our criteria define these terms. We consider Agroton's business risk profile to be constrained by the high risk associated with doing business in Ukraine (B+/Negative/B), which has a history of government intervention in the agricultural sector. Furthermore, external factors such as difficult weather conditions can greatly influence the global supply of soft commodities, such as wheat and sunflower seeds, which are Agroton's main crops. This, in turn, creates high earnings' volatility for Agroton. Partly offsetting these risks are the positive long-term demand trends for crops, especially in emerging markets, such as the Middle East. We also view positively the sizable scale of Agroton's operations and storage capacities in Ukraine.

We view Agroton's financial risk profile as highly leveraged mainly because we forecast that it will generate negative free cash flow until 2014, as we foresee Agroton expanding its operations and investing in equipment. We also note that Agroton has high exposure to currency exchange risk given that its revenues are in local currency (Ukrainian hryvnia), whereas its debt obligations are denominated in U.S. dollars.