Credit-Rating confirms the rating of Odesa at uaАА-, determines investment attractiveness at uaINV5 (the highest level) Credit-Rating confirms the rating of Odesa at uaАА-

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Expert Opinion

18.02.2008

Credit-Rating expects a consolidation row in Ukraine`s agriculture sector in 2008

Credit-Rating anticipates 2008 to see a number of mergers and acquisitions in oil & fat and sugar sectors of Ukraine`s agriculture industry. Thus, the trend at consolidation and further development of vertically integrated holdings will be further retained, with small companies being likely to be acquired.

The oil & fat companies have established infrastructure, which encompasses a chain of grain-elevators, butter-dairies, motor transport and trade companies and of other production facilities. Credit-Rating expects interest of oil & fat holdings towards acquisition of agricultural companies with rented land suitable for growing of oil-yielding crops to grow. The retained tendency of companies` consolidation has been prompted by sharp rebound in global prices for oil-yielding crops and seed oil in 2007 and by expected surge in demand and prices in 2008. Moreover, oil & fat holdings are concerned with decrease in dependency upon raw materials supply combined with growing volume of production output.

High dependency upon supply of raw materials is also inherent to companies engaged with sugar production. This dependency became even sharper in 2007, when cultivated areas decreased by 20 per cent and adverse weather conditions affected deeply the sugar degree of beet crops. Thereat, the price for sugar-beet remains stable, which lowers its profitability, and, therefore, the growers` interest towards its production. Considering the said, we may foresee a 30 per cent shrink in cultivated areas, which will entail deficit of raw materials for processing companies. As a result, small sugar refineries will further be acquired by large sugar-production groups, which have own facilities for sugar-beet growing. In Credit-Rating`s view, limited raw materials base and necessity in updating the production facilities will further prompt retention and development of the acquisition trend.

The agency`s experts believe that further development of vertically-integrated holdings may affect their ratings. The primary factor to underpin ratings of agriculture companies in 2008 is enhanced performance of companies, which strive to closed production cycle. Among the factors exerting a downward pressure on the ratings are low information transparency, high companies` debt burden, vulnerability to support from the state and exposures entailed by seasonality of production.

For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua

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