Cherkizovo Abandons Investment Plan in Samara

RUSSIA - Cherkizovo Group will not invest in four poultry plants in Samara region, and new owners are being sought for the Ptitseprom factories.
calendar icon 31 October 2008
clock icon 4 minute read

Cherkizovo Group refused to purchase four poultry plants in Samara Region, reports Meat Russia. Ptitseprom, the owner of the poultry plants, has already started search of new investors. Experts point out that, such a situation was a forecasted one, as economic efficiency of acquiring non operating production facilities is doubtful. The analysts consider that within the financial crisis the group should better focus on its own projects.

At the meeting of the Administration of Samara Region on 29 October, Viktor Altergot, the Deputy Minister of Agriculture and Food of Samara Region said that Cherkizovo Group had postponed plans for reconstruction of four poultry plants in the region for some years. The project was planned within the frames of the agreement on development of poultry production complex in the region, which was signed with Samara Administration on July 2008. The agreement details were not disclosed.

According to market operators, when the company was signing the agreement, it could rely on some benefits for taxation and business, as well as the Administration's support in relation to land issue solutions. Moreover, this year the company NAPKO where Igor Babaev (who also controls Cherkizovo) is one of the co-owners, agreed with the Administration of Samara Region on lease of 50,000 hectares of land in Sergievsky district until the end of 2008. In future the company was going to purchase the leased lands.

Cherkizovo was going to reacquire the following poultry plants from OAO Ptitseprom: Zhigulevskaya, Krotovskaya, Podbelskaya and Timashevskaya. It had planned to develop broiler production there. Experts estimated the cost of the plants to be $15-20 million. The potential production capacity of the plants is 20,600 tons of poultry per year.

However, the plants have not been in operation since 2003, and the region's Ministry of Agriculture says there are no equipment at the facilities.

Maria Zharkova, press-secretary of regional Ministry of Agriculture said that Cherkizovo had postponed the project because of difficulties in raising the finance for reconstruction in the current financial crisis - estimated to be 5 billion rubles.

According to Yury Fokin, the General Director of Oriks Group, his company has already sent to the regional Administration their proposal to increase poultry production in the region without Cherkizovo's participation.

Meat Russia reports that Cherkizovo Group is one of Russian largest agricultural holdings, which specialises in meat processing, pig and poultry breeding. The company's revenues totaled $840.8 million in 2007, EBITDA was $115.3 million. The Group is controlled by family of Igor Babaev, the Chairman of the Board of Directors of OAO Cherkizovo Group. Cherkizovo has no assets in Samara Region.

According to the data of the regional Ministry of Agriculture of Samara Region, total production output of poultry plants of Samara Region is under 30,000 tons per year, while regional consumption is 150,000 tons.

On 29 October, Cherkizovo officials denied that the Group had declared an intention to purchase the Ptitseprom plants. They said the option had been discussed but no decision had been made.

However, Yury Fokin said that the two companies had reached agreement during the summer. He said Ptitseprom had fulfilled all its obligations but Cherkizovo had not, and his company is now seeking other investors.

"First of all, the economic efficiency of purchase of the poultry plants was doubtful from the very beginning, and taking into consideration the state of facilities, the company examined the possibility of purchasing them by request of local authorities, which promised to provide the investor with necessary support," pointed out Andrey Sizov, executive director of analytical service, Sovecon.

"Secondly, within the conditions of low liquidity many companies suspend their investment projects," he added.

At present, companies direct their efforts to implementation of already started projects, Dmitry Rylko, the General Director of Institute for Agricultural Market Studies (IKAR) told Meat Russia.

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