Cherkizovo Group prepares for a meeting with the WTO

June 15, 2012

Cherkizovo Group announces the acquisition of «Voronezhmyasoprom», a set of agricultural assets in Central Russia for 4.46 billion roubles. Among them is a swine nucleus unit in the Voronezh region, elevators in Voronezh (designed for storing 150 thousand tonnes) andPenza fields (60 thousand tonnes with the prospect of increasing to 90 thousand tonnes), a fodder plant under construction and a land bank of approximately 30 000 ha in the Voronezh region (about 25 thousand ha are included within the agricultural turnover). The value of the acquired assets includes 2.8 billion roubles of debt, which Cherkizovo Group will take on. Payments will be made in cash to the value of 1.26 billion roubles and 795 thousand shares of Cherkizovo Group. aTransaction approval must be sought from the Federal Antimonopoly Service of Russia.

According to experts at Troika Dialog, as a result of the deal, the ratio of net debt to EBITDA of Cherkizovo will rise from 3 at the end of 2011 to 3.3 at the end of 2012. This is acceptable taking into account an effective cost of debt for the company at 2%. Specialists think that the price for the acquired assets is reasonable. «But we are treating this news with caution, because the return on investment from the deal is likely to be lower than in the case of organic growth (company provides a return on investment of 17–25% for new projects in the Poultry and Pork sectors)," added the analyst.

Specialists at FG BCS suppose that the purpose of the deal may be to strengthen the position of Cherkizovo Group and NAPKO in anticipation of the entry of Russia to the WTO (expected in September 2012). With the acquisition of Voronezhmyasoprom, Cherkizovo will receive additional tax benefits and state subsidies. This will support the company’s business and protect it from fluctuations in the grain market and the risks associated with the supply of pig breeding (a possible ban on the import of breeding pigs along with pigs for slaughter was discussed). «We don’t exclude the fact that in the future Cherkizovo may gain other NAPKO assets," reported an expert.

Cherkizovo Group is a vertically integrated agro-industrial company with a full production and sales cycle. It consists of three main production units: meat processing, pig breeding and poultry farming.