You're reading: Signs emerge of bond, IPO activity

Stock market activity has been low since the crash of August 2011, sending prices and trading volumes to their lowest in years. Plans to go public or expand operations have been postponed, leaving many businesses in Ukraine and across the globe short of affordable capital.

Yet there are signs that a cautious revival may be around the corner.

Cereal Planet, a Cyprus-based holding farming grain in the Kharkiv region, announced plans for an initial public offering on the alternative market New Connect at the Warsaw Stock Exchange. The less stringent regulations and small issues, typically $1 to $5 million, are tailored for younger and smaller companies seeking to expand.

If Cereal Planet fulfills plans to issue over $3 million in shares in the third or fourth quarter of 2011,   it would be a small deal in terms of the investment raised. But it would nonetheless end the public offering hiatus which began after Ukraine’s Coal Energy’s last August raised $82 million through an IPO in Warsaw. Close to a dozen companies went public in the two years prior to that raising more than half a billion U.S. dollars.

Cereal Planet claims money is not its only motivation for venturing into an IPO during uncertain times that have kept markets jittery.

“We are not just interested in capital, but also in the status of being a public company listed on a European stock exchange,” company director Anatoliy Vlasenko told investors during a conference call on June 19. “Attracting capital on New Connect is more attractive compared to the current bank financing possibilities in Ukraine,” he added.

Vlasenko said interest in investing in Ukraine and an active investor base had tipped the balance in favor of Warsaw.

Other companies are also lining up.

In May, sea transport company KDM shipping announced it would be looking to go public. Its IPO could potentially be valued at $25-30 million, sources close to the deal have said.

Earlier this year European Capital Management head Vadim Brailovskyi predicted that up to half a dozen IPOs could be initiated in 2012, including those of gasoline retailer Galnaftogaz, agribusiness firms Loture Agro and Svarog West.

Numbers twice as high have been mentioned by other experts. This may be difficult though, as recent problems with Warsaw-listed Ukrainian companies Agroton and KSG Agro caused investors to question the reliability of reported results by domestic companies. Moreover, the general economic climate remains poor both in Ukraine and throughout Europe.

“Risk levels remain very high,” said Konstantyn Fastovets, agribusiness sector analyst at the international investment bank Troika Dialog. “It’s a little early for IPOs,” he added.

Bonds, on the other hand, present a more attractive option for businesses that need cash, Fastovets argued. Greater security and high rates of return make them a preferred choice for investors seeking to keep risk manageable.

This seems to be the case.

In Ukraine’s first foreign issue in a year, New York Stock Exchange Euronext-listed Agrogeneration began auctioning bonds on June 19. The company, with operations in Ukraine and Argentina, plans to issue 15 million euros in total.

It will soon be followed by a 200 million hryvnia ($25 million) local bond issue by Warsaw Stock Exchange-listed IMC (Industrial Milk Company). The company expects to pay just 14 percent on the debt, a very low figure for the Ukrainian market, were rates for hryvnia-denominated bonds can reach 20 percent.

It’s possible that the investors will receive some kind of currency hedge or other favorable terms in the contract, said Fastovets.

Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].