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Black Earth Farming Agrees to Sell Russian Operations; Plans Company Liquidation

February 14, 2017

Stockholm-listed Black Earth Farming announced it has entered into an agreement to sell its Russian operating units, Agro Invest (AIMC) and Agro Invest Regions (AIRMC) for US$184 million to Volgo-DonSelkhozInvest, an agricultural company owned by Russia’s Kukura family.

Volgo-Donselkhozinvest is a Russian agricultural company specializing in grain, corn, sunflower, and cereal production. The company, which controls 200,000 hectares of farmland and multiple grain elevators with the bulk of its operations centered in Volgograd and Lipetsk, plans to fund the deal, which values AIMC and AIRMC at US$200 million, through a combination of equity and bank debt.  

Once the deal is completed, it also will be followed by a voluntary liquidation of Black Earth Farming “as soon as practically possible” after the company has repurchased its outstanding bonds and has distributed excess proceeds to shareholders.

Founded in 2005, Black Earth Farming was a pioneer among foreign-backed companies looking to gain a presence in Russia’s promising agriculture sector. As of December 2015, the company had grown to control 256,000 hectares of farmland, of which 89 percent was in ownership. In 2015 the company harvested approximately 150,000 hectares of mainly wheat, corn, barley, sunflowers, and potatoes, primarily in the Black Earth region of southwest Russia making it one of the largest public farming companies by cropped areas in the world.

However, a multi-year hit to global commodity prices, the socio-economic fallout from years of sanctions in response to Russia’s activity in Crimea, and Russia initiating scheme to limit exports have all hit the company’s balance sheet. And although Black Earth Farming reported profits in 2012 and 2015, overall the company saw a net loss of $250 million by 2015.

In August 2016 Black Earth Farming confirmed through a press release that it was indeed engaged in negotiations with Russian company, ASB Group, and other potential buyers, regarding “a substantial land and asset sale,” however a possible deal was eventually left on the table.

“Having evaluated an asset sale versus other alternatives, the Board of Directors of Black Earth Farming has concluded that a divestment of AIMC and AIRMC to Volgo-DonSelkhozInvest is the best alternative for the company and its shareholders,” stated Black Earth Farming in a company statement.

After all costs associated with closing the deal are met, the Black Earth Farming Board of Directors expects between $185 million and $193 million to be available for distribution to shareholders. At current exchange rates, this translates to approximately between SEK 7.2 and SEK 7.5 per Swedish Depository Receipt after dilution.

The three major shareholders in the company – Kinnevik AB (publ), Alecta pensionsförsäkring, ömsesidigt, and GoMobile Nu AB and the company’s CEO Richard Warburton have all agreed to vote in favor of the transaction, and the Black Earth Farming Board of Directors is expected to convene an Extraordinary General Meeting by the end of March 2017 to approve the transaction and its related resolutions.

 

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com

 

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