Billionaire Bakhmatyuk finds eggs are golden

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July 22, 2010, 9:23 p.m. | Business — by John Marone

Oleg Bakhmatyuk

Bakhmatyuk’s success shows farming potential. When Ukrainian egg maker Avangardco announced last April that it was doing an initial public offering on the London Stock Exchange, few investment bankers knew much about the company’s owner and chief executive officer, Oleg Bakhmatyuk.

A month later, the once camera-shy Bakhmatyuk was propelled to the growing list of Ukrainian billionaires. Investors valued Avangardco, one of the many assets held by Bakhmatyuk, at some $1 billion by purchasing roughly 20 percent of company shares for about $210 million.

It wasn’t the first time a Ukrainian agribusiness company went public on a European exchange. But Avangardco became the only such company besides Ukrainian agricultural all-star MHP, which is also in the poultry business, to trade on London’s prestigious main exchange.

Such successful listings showcase the vast potential of agribusinesses in Ukraine. Blessed with rich soil, the nation earned the reputation as the “Breadbasket of Europe” centuries ago and now seeks to become a major international supplier of meat and other protein-based foods. Eager to capitalize on such vast potential are newly rich and ambitious tycoons such as Bakhmatyuk.
“We are the engine of the industry.”

- Oleg Bakhmatyuk, CEO of Avangardco, Ukrainian egg maker.

A physically imposing 35-year-old from western Ukraine, Bakhmatyuk differs from Ukraine’s bigger business sharks, most of whom come from the country's industrial eastern regions. Sitting confidently during a Kyiv Post interview in his big office, situated in downtown Kyiv and brightened up with religious icons, Bakhmatyuk made clear that he is not going to rest on his laurels anytime soon.

“We are the engine of the industry,” he said adding that Avangardco’s closest competitors lag far behind. According to Bakhmatyuk, Avangardco holds an impressive market share of 23 percent of overall Ukrainian egg production and 53 percent of egg products.

In a country where most eggs are still produced by private farmers, market share can be deceptive, but Bakhmatyuk’s company has achieved impressive profits. Between 2007 and 2009, Avangardco’s revenues more than doubled from $127.8 million to $320 million, with net 2009 profits totaling $134 million. The sale of eggs and egg products account for 80 percent of these figures.

The results are impressive, but why would a man with a background in Ukraine’s more lucrative but shadowy oil and natural gas business go public, moreover through the egg business?

According to Bakhmatyuk, it was a profitable transition, and he insists the future holds much more upside for businesses eager to feed an increasing and hungry world population.

Until rising into the spotlight through his IPO, Bakhmatyuk dwelled below the radar screen of many billionaire gazers. But his story shows he has, like many of Ukraine’s wealthiest, rubbed shoulders with the nation’s top powerbrokers.

Back in 2005, Bakhmatyuk was hired as an adviser at Ukraine’s state oil and gas company Naftogaz Ukraine – long known as a feeding trough for bureaucrats. In 2006, he was promoted by then Naftogaz chief Oleksiy Ivchenko, who also hails from western Ukraine, to deputy CEO of the strategically important company. It was around this time, in 2006, that Bakhmatyuk even made an unsuccessful bid for parliament on the losing ticket of current parliamentary speaker Volodymyr Lytvyn.

Bakhmatyuk finally left Naftogaz in 2007, selling off his assets in a string of lucrative regional gas distribution companies, a sector of Ukraine’s economy where the line between profit and politics is often blurred.

“We quit this sphere. We left the sector fully,” he said, declining to reveal the size of the exit deal, or who the buyer of these assets was.

Gas specialist Vladimir Omelchenko of the Kyiv-based Razumkov Center think tank, said the size of the stakes in the regional gas companies Bakhmatyuk allegedly sold, as well as their value, are a mystery. “But I can say with certainty that some of these assets are now controlled by the group led by Dmitry Firtash, who has an option to buy.”

“If you recall, at the beginning of the 1990s, the average Soviet or Ukrainian family ate eggs, because they were cheap, along with, for example, potatoes. So, maybe on a hunch, you could say we decided to build up the position of a local player.”

- Oleg Bakhmatyuk, CEO of Avangardco, Ukrainian egg maker.

A billionaire who profited greatly in prior years as the partner of Russian gas giant Gazprom in the supply of blue fuel to Ukraine, Firtash is today seen by analysts as one of President Viktor Yanukovych’s strongest backers. When Bakhmatyuk allegedly acquired the gas supply companies, he was seen as close to Ivchenko and other officials backing then-president Viktor Yushchenko.

It was also in 2007, when Bakhmatyuk started building his egg empire in earnest. He now attributes his career move to business intuition.

“If you recall, at the beginning of the 1990s, the average Soviet or Ukrainian family ate eggs, because they were cheap, along with, for example, potatoes. So, maybe on a hunch, you could say we decided to build up the position of a local player,” Bakhmatyuk explains.

By “the position of a local player,” the Ukrainian businessman was referring to an egg producing facility in his sleepy home region of Ivano-Frankivsk, which he purchased and began to modernize in 2003.

But this move necessitated unrelenting growth from the word “go,” according to Bakhmatyuk. “The business wasn’t that bad but it didn’t have any prospects,” he said.

So Bakhmatyuk went on to develop his current Ukrainian egg empire, which consists of 19 poultry farms, six fodder production facilities, an egg processing plant, three breeders, three storage structures and nine farms – all scattered across the map of the country.

The money from this year’s IPO will go toward more construction, Avangardco has said.

Ukrainian press reports have speculated that Avangardco may use some of the $210 million from international investors to pay back mounting company debts.
But according to Avangardco’s head of business development, Oksana Prosolenko, these debts are “not onerous,” totaling $102.5 million in 2009.

Sergey Feofilov, director of Kyiv-based agribusiness consultancy UkrAgroConsult, also played down Avangardco’s liabilities. “It’s not so bad,” he said.

And with the company’s market capitalization currently hovering just under $800 million – in an admittedly bearish market – for Bakhmatyuk the way forward is beyond Ukraine’s border into the protein hungry populations of Asia and the Middle East.

“[Global capital] is looking for investments, and one of the best investments is the agribusiness sector, which is based on food security across the world, first and foremost in Africa and Asia,” he said.

Last year, Avangardco exported around 17 percent of its egg products. This year, the figure will be 22 percent, according to Bakhmatyuk. Radion Rybchinsky, director of Ukrainian agro consultancy APK, said that the export of Ukrainian eggs looks promising.

“The main markets for Ukraine are the Middle-East and CIS,” he said. Between 2008 and 2009, overall export volumes tripled from 10,300 metric tons to 35,000 metric tons, which in monetary terms equates to a doubling from $20.2 million to $42.3 million, he said.

But in order for Ukraine to realize its ambition as a major world food producer, it’s going to take more than the success of a few successfully traded companies, according to Bakhmatyuk.

“You cannot break through in a single day. Companies like Avangardco and MHP are like islands sticking out of the agro-sector sea. These are projects that attract investors with their margins like bate.”

Government has to work in tandem with business toward long-term goals, he said. “The rules have to be there for 10 years. Whoever is in whatever government, the rules cannot change. Obligations to domestic and foreign investors have to be upheld and the rules have to be clear,” he said.

According to Bakhmatyuk, such public-private cooperation lies behind the success of global food producers such as the United States.

“For Ukraine, agriculture isn’t just an economic issue, it’s a huge social issue. Over 40 percent of the population of Ukraine lives in rural areas, of them only 20 to 30 percent are employed, which is a huge state drain.”

- Oleg Bakhmatyuk, CEO of Avangardco, Ukrainian egg maker.

“What did U.S. diplomats do when they came to Russia? First, they worked on arms control and then they found a market for U.S. chicken wings.”

But for Ukraine, the importance of agribusiness goes beyond increasing gross domestic product figures, he said.

“For Ukraine, agriculture isn’t just an economic issue, it’s a huge social issue. Over 40 percent of the population of Ukraine lives in rural areas, of them only 20 to 30 percent are employed, which is a huge state drain.”

In addition to Avangardco and his own bank, CB Financial Initiative, Bakhmatyuk is also the owner of Ukrlandfarming, which does grain growing and cattle breeding. The Cyprus-based company holds 110,000 hectares of land under management and owns 26,000 head of cattle livestock producing beef and milk.

When asked about common problems faced by other exporters such as government delays in paying value added tax returns, which are now in the billions, Bakhmatyuk said: “Like everyone, I have export accounts, but things are in the works. We fight the best we can, we are waiting for [government VAT] bonds to be issued.

Regarding state proposals to create a state agricultural bank, he was less optimistic: “I am for it, but I think a state agro bank can only work with other banks, because there is nothing more effective than private capital. The state must lobby, stimulate and regulate.”

And on the highly contentious issue of cancelling Ukraine’s long-standing moratorium on the sale of agriculture land, Bakhmatyuk fell in line with most other sector players.

“I don’t think it will happen fast in this country, because a lot of politicians like to exploit the marginality of the population. They don’t understand that without a land market, serious investment is unlikely to enter the country. It will come but not in serious amounts. Most importantly, it will give work to a lot of companies in Ukraine. I think that it will happen in three or four years. This is not a lot or a little,” he said.

In the meantime, Bakhmatyuk plans to take his farming company to a European stock exchange this year as well, following on the success of Avangardco.
“We are currently finishing up preparation works,” he said.

Kyiv Post staff writer John Marone can be reached at
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