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TEXT-Fitch upgrades Mriya Agro Holding to 'B', outlook is stable
January 22, 2013 / 3:42 PM / 5 years ago

TEXT-Fitch upgrades Mriya Agro Holding to 'B', outlook is stable

Jan 22 - Fitch Ratings has upgraded Mriya Agro Holding Public Limited's
 (Mriya) long-term foreign and local currency Issuer Default Ratings
(IDR) to 'B' from 'B-'. The agency also upgraded Mriya's National Long-term
Rating to 'A-(ukr)' from 'BBB+(ukr)'. The Outlook on the Long-term IDRs and
National Long-term Rating is Stable. The agency has also affirmed the short-term
foreign and local currency IDRs at 'B' and upgraded Mriya's USD250m senior
unsecured notes due 2016 to 'B' from 'B-'with Recovery Rating 'RR4'.

The upgrade reflects Mriya's demonstrated consistent growth and profitability as
well as expected moderate leverage even after substantial investments in fixed
assets in 2012. We expect Mriya to maintain high cash flow from operations (CFO)
generation ability and adequate liquidity under its 'B' rating. Mriya's
efficient operations, high profitability and adequate liquidity position are
good mitigants to risk factors outside of management control, namely dry weather
conditions, export restrictions and international grain price volatility.

Resilient Operating Performance Expected
Mriya delivered outstanding revenue growth in 2011, and is also expected to show
strong growth in 2012, while keeping the operating margin relatively stable.
However, as the company has shifted towards a policy of more muted land bank
expansion and we do not envisage a further dramatic improvement in crop yields,
we assume slower revenue growth for 2013 and 2014 albeit subject to volatility
in selling prices. Fitch expects FFO margin at or above 40%, which is healthy
for the rating, supported by investments in logistics and infrastructure

Capex Key Part of Strategy
Mriya has muted its land acquisition programme and shifted its focus on
enhancing its existing operations' efficiency through heavy investments in
storage facility construction and logistic fleet expansion. We acknowledge the
benefits of these investments to Mriya's business profile, despite our
expectation of a slower payoff from infrastructure investments relative to land
lease rights acquired (even after taking associated working capital investments
into account). Therefore Fitch assumes a gradual deleveraging with FFO adjusted
net leverage trending towards 2x by 2015 (2012F: 2.3x). This is consistent with
the 'B' rating for the sector.

Limited Impact from Hryvnia Depreciation
A possible depreciation of the hryvnia should not jeopardise Mriya's debt
service capacity in foreign currency as the company's dollarised revenues exceed
USD-based operating and interest costs. However, from a balance sheet
perspective, the FX mismatch remains material as Mriya's debt is largely

Adequate Liquidity, Limited Debt Redemptions
Mriya's liquidity profile is supported by a strong CFO exceeding USD100m per
annum in Fitch's projections, a conservative cash management policy, high
marketability of inventories and flexibility in its capex plans. Mriya funds its
working capital cycle (equating to a USD140m swing from peak to trough or
0.7x-0.8x EBITDA intra-year) from existing cash and short-term deposits,
proceeds from the sale of grain, and availability under its revolving lines from
EBRD ('AAA'/Stable) and IFC. Mriya also benefits from a smooth debt maturity
profile as the USD250m Eurobond (57% of total financial debt) only matures in
March 2016.

Corporate Governance Issues Remain
Relative to other Ukrainian peers, such as Kernel and MHP (both rated 'B+' local
currency IDR), Mriya's corporate governance is still weak, mainly because of
related party transactions in relation to all of its sugar beet production (this
represented 35% of Mriya's total revenues in 2011). Although this is a
constraining factor for a future positive rating development, Fitch understands
the sugar companies owned by the controlling shareholder do not have meaningful
financial debt as they have no major capital spending plans.

Well Placed Relative to Peers
Compared to its closest peers, Mriya has stronger cash flow generating capacity,
offset by smaller scale and lower vertical integration versus Kernel and MHP,
both of which have farming operations as part of their business models. Although
Mriya tends to focus on lower value-added, commodity-type goods compared with
protein-producers Avangardco ('B'/Stable) and Miratorg ('B'/Stable), Mriya has
shown stronger profitability than these companies. Mriya's leverage is also
lower than the average for 'B' rated agribusiness peers in the CIS.

Positive: Future developments that could lead to positive rating actions
- Contraction of related party transactions or full consolidation of the sugar
business into the group
- Evidence of positive or at least only moderately negative FCF margin
The above factors would have to be accompanied by at least two of the following
- FFO margin above 35% or FFO above USD200m in absolute terms
- FFO adjusted net leverage below 1.5x (and below 2.5x at peak throughout the
- FFO fixed charge coverage consistently above 4.5x
- Maintained strong liquidity - available cash, committed available bank lines
and expected next year's CFO less maintenance capex covering at least 150% of
short-term debt maturities

Negative: Future developments that could lead to negative rating action include:
- Declining profitability driven by sustained cost increases and/or yield
erosion bringing FFO margin down to the 25%-30% range
- Weaker liquidity profile
- FFO adjusted net leverage consistently above 2.5x at year-end (or 3.5x at the
peak during the year)
- FFO fixed charge below 3x

Additional information is available on For regulatory
purposes in various jurisdictions, the supervisory analyst named above is deemed
to be the primary analyst for this issuer; the principal analyst is deemed to be
the secondary.

The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Corporate Rating Methodology' dated 8 August 2012 are
available at

Applicable Criteria and Related Research:
Corporate Rating Methodology

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