The ongoing Russia-Ukraine crisis has caused minimal disruption to Don Agro’s operations, as its crops and milk are sold directly to traders who purchase and collect commodities from the group’s facilities in Russia, says the agricultural group in a statement released during the wee hours of March 1.
“All raw materials necessary for the production are available as usual, with the majority of raw material necessary for the spring agricultural works already purchased and delivered to the group’s warehouses,” reads the statement.
The decline in the Russian rouble (RUB) will not impact Don Agro’s operations either, as the rest of its harvest in 2021 was sold at the beginning of 2022 at tender prices that are determined by international commodities exchanges.
The group’s existing borrowings will also remain unaffected as the interest rate of its existing borrowings are fixed. On Feb 28, the central bank of Russia increased its key interest rate to 20% per annum from 9.5%, thereby causing commercial banks to increase their cost of borrowings to 18% to 25%.
In addition, the group states that the Russian government will continue to support agricultural businesses and will be subsidising the interest rates of loans for agricultural activities amid the increase in the cost of borrowing.
“In the event that this subsidy programme is not forthcoming, the group will still be able to service bank loans with interest rates higher than 20%, when the need arises,” reads the statement.
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As at March 1, Don Agro has an aggregate value of $3.45 million in current and non-current loans. “A significant part of these loans must be redeemed in the first quarter of 2022. As at March 1, the balance of cash and cash equivalents is $7.27 million and will be sufficient for the full redemption of all existing loans and to continue operations without taking on new borrowings.
Further to its statement, Don Agro noted that wheat prices have continued to rise for five years in a row to the current price of US$9.28 ($12.60) per bushel (CBOT) as of Feb 28 from US$4.32 per bushel on 28 February 2017, highlighting the importance of the commodity globally and the ongoing situation of hyper food inflation.
“Both Russia and Ukraine produce 29% of wheat in the world, and we at Don Agro are proud to contribute to this sector, which is very important for global food security and wellbeing. We will continue playing our role by producing commodities and implementing green technologies for the sustainable development of the company,” says Evgeny Tugolukov, executive chairman at Don Agro.
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On this, the group expects to see a significant increase in selling prices of agricultural produce which will allow an increase in its cash and cash equivalents notwithstanding depreciation of the Russian rouble.
However, despite the minimal impact, Don Agro says it may “face challenges in raising significant long-term borrowings in the future, which could potentially reduce the volume of investments for the purpose of expansion”.
None of the group or its subsidiaries are listed on the global sanction lists. While its subsidiaries are dealing with sanctioned entities, the transactions are not in the lists of prohibited and, or restricted transactions of relevant sanctions.
Shares in Don Agro closed 3 cents lower or 8.82% down at 31 cents on March 1, close to its 52-week low of 30 cents.
Photo: Don Agro
