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Agroton placement parameters are an exception rather than the rule

Nov 10, 2009

ALTERA FINANCE IG’s international capital markets department believes that the private placement of Agroton agricultural holding at Frankfurt stock exchange, which, according to press reports, is to bring $42m for 20-25% stake at an EV/EBITDA multiple of 7.64-8.40, is illogical and highly controversial. There are several strange facts about it.

First. The actual multiples for comparable Ukrainian companies listed at Warsaw Stock Exchange - KERNEL and ASTARTA - are 4.26 and 5.23 respectively. Thus, Agroton's alleged private placement must go ahead at a higher multiple, which is unrealistic, since the initial offering usually applies a discount to the businesss fair value. Moreover, in case of a private placement there is a discount even to the IPO valuation, which is a traditional opportunity to exit from the investment for the funds who bought in during a private placement.

Second. A recent secondary offering of Sintal at the same Frankfurt astock exchange had an EV/EBITDA multiple of 3. Meanwhile, Sintal has a debt to EBITDA load of 0.5, against Agrotons 1.5.

Third. There is information that Agroton hasn't been very good at servicing its debts: it has defaulted on obligations (non-performance on the offer). With an approach like that, an issuer can hardly hope for a favorable valuation by investors.

Fourth. Many Frankfurt SE investors have had some unpleasant experience with Ukrainian private placements in recent years, being forced to exit investments at high discounts. In view of that and of the current political and economic instability in Ukraine, investment in this country will be considered highly risky, which will apply a discount to the fair value.

Fifth. Agrotons placement amount of $42m is far from the liquidity values that beget a high demand.

So, if the private placement does occur with the alleged parameters, it will be a wonderful feat of the investment bank.

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