(Boursier.com) — AgroGeneration a grain and oilseed producer based in Ukraine, is launching a restructuring process within the Group aimed at selling off the Group’s assets and infrastructure which have become “toxic”, and whose value has fallen sharply following the invasion from Ukraine launched on February 24, 2022. Four of the group’s six production sites currently have such “toxic” assets with varying amounts of losses.
About 25,000 hectares of the Group’s agricultural land, the corresponding fixed assets and production infrastructure are considered by management to be “toxic”. The value of these goods has fallen sharply because they are either:
– destroyed or damaged as a result of military activities,
– located near the front lines without having access to them and unable to use these assets (including extensive mining),
– assets for which the company incurs expenses or increases its debts but is no longer able to use them.
These “toxic” assets include farm machinery, fixed assets and real estate, inventory and land assets.
The land of the Donets farm (7,500 hectares), although freed from occupation at the beginning of September 2022, remains in the category of “toxic” agricultural land, since the production bases and almost all fixed assets of this farm have been completely destroyed. during the war. Nearly 40% of the production bases and equipment of the Barvinkivska (9,100 hectares) and Podolivska (5,400 hectares) farms were also destroyed or damaged at the start of the war.
In total, more than 22,000 hectares of farmland, including the farmlands of Podolivska, Barvinkivska, and Donets, have been at the epicenter of hostilities for more than 6 months and have been brought into a completely unsuitable state for cultivation for 2 to next 3 years. These lands include minefields and scattered unexploded ordnance and mines, and require clearance, which will take several years and a significant financial investment. These fields were subjected to explosions, the displacement of military equipment and the construction of a large number of trenches and defensive buildings. Therefore they require recultivation, which is also a long and expensive process. In addition, a decline in the natural fertility of these lands is expected due to the degradation of the black soil layer and toxic pollution from the explosions, which cannot currently be accurately estimated in financial terms.
The land of the Burlutske farm (3,300 hectares), liberated at the beginning of September 2022, also remains in the category of “toxic” agricultural land because it is located near the front line. According to available information (the area is currently closed by the Ukrainian military authorities, no one is allowed there), the production bases of the farm were looted, almost all the equipment was stolen. In this area, Russian troops built many engineering structures (trenches, checkpoints, artillery positions, etc.). Additionally, the occupiers extensively mined the roads and fields in these areas in order to impede the advance of the Ukrainian army. It is unlikely that the Group will be able to cultivate the land of this farm until the complete cessation of hostilities between Ukraine and Russia, since the Burlutske farm is located in the border area (20-25 km from the border with Russia), and therefore, with a high probability, it will be subjected to daily rocket and artillery fire from the territory of Russia, as is currently happening in the liberated regions of Sumy or Chernihiv.
The assets qualified as “toxic” are not currently operated by the Group and are not ready to be operated during the next production campaigns. However, the company is required to continue to accrue the cost of leasing this farmland, pay it or create financial reserves on an annual basis (more than $2M per year, or more than $6M for the next 3 years ). In addition, these agricultural lands require significant costs for their restoration, including the costs of demining and recultivation, and capital expenditure for the renewal of machinery and production infrastructure. Following the deoccupation of the Kharkiv region in September 2022, management was able to more accurately assess the total maintenance costs (including the cost of land rental) and restoration of “toxic” assets by compared to the previous estimate made in June 2022: at more than $50 million.
A contract was signed at the beginning of October, with a selected liquidator and according to the following provisions and conditions:
– The list of entities subject to liquidation includes the Donets farm, the Burlutske farm, the newly created companies Barvinkivska Agro and Podolivska Agro.
– The purpose of the restructuring is to completely write off from the balance sheet of AgroGeneration and its affiliates the assets, property, property rights and obligations, etc., which have been damaged, lost or otherwise affected after February 24, 2022 during the martial law following the Russian military invasion.
– The expected duration of the execution of the liquidation procedure: 9 months (October 2022 – June 2023).
– From the date of alienation of social rights (date of signature of the agreement) by the liquidator, AgroGeneration assumes no legal and financial responsibility for the entities subject to the restructuring (including the receivables and payables, contractual obligations and other obligations) regardless of when they arise.
– Liabilities and costs: approximately $1.1 million to be paid to the liquidator (in monthly installments) in equal amounts for the execution of the liquidation.
– Price for these “toxic” lands: 0 $ since the companies will be liquidated.
Operationally, the activity will be reduced to around 30,000 hectares of cultivated agricultural land, with a similar reduction in related assets and infrastructure. The Group’s head office will also be optimized according to the new scope of activity.
From a financial point of view, the Group expects a deterioration of its results in 2022 affected by losses already incurred in the 1st half of the year due to the Russian invasion of Ukraine, as already indicated in previous press releases, with a gradual improvement in the Group’s performance to be visible at most early to the end of 2023.