PJSC Agrarian Fund – 3 ways to the Future

Public joint-stock company Agrarian Fund was established based on Ukraine’s Cabinet Resolution No. 364, dated April 22, 2013, “On the establishment of the public joint stock company Agrarian Fund.” The company’s share capital was formed with money received via the issuance of government bonds in the amount of UAH 5 bn with a maturity period equalling five years and an interest rate set at a level not exceeding 14.3 percent per annum. Official registration took place on October 7, 2013.

Agrarian Fund is a company, 100% of shares of which are state-owned. It is the leading operator of the agrarian sector of Ukraine. The purpose of the Agrarian Fund is to create favorable conditions for the development of agriculture and the functioning of the agricultural market. Agrarian Fund supports domestic agricultural producers, as well as makes profits from economic activity in accordance with the law. Taking into account the expiration of issued government bonds that were contributed to the share capital, we considered three scenarios for the enterprise’s future operation: 1-Liquidation, 2-Privatization, 3-Concession We also analyzed the economic effect for Ukraine’s state budget for each of the three scenarios.

The effect of each of the scenarios was analyzed in terms of the ultimate beneficiary of Agrarian Fund — Ukraine’s Finance Ministry. The options for privatisation and liquidation of the enterprise will give a one-time receipt of funds to the state budget.

Thus, in case of liquidation existing assets of the enterprise could be sold for an amount of UAH 3.01 bn, and during privatization the enterprise can be sold for UAH 3.04 bn. In the result of choosing one of these scenarios, the state will incur a loss of UAH 1.99 bn and UAH 1.96 bn, respectively (in comparison with originally invested funds in the share capital of UAH 5 bn).

Therefore, we have developed two options of the third scenario regarding future operations of Agrarian Fund — concession. According to our analysis, both variants of the concession should be more beneficial for the state budget than keeping the enterprise in the state form of ownership.

At the same time, the first option of the concession in the form of a concession payment, calculated as a difference between the amount of the annual expenses of the Finance Ministry for servicing the bonds issued (UAH 715 million) and the amount of taxes paid by Agrarian Fund — should allow the Finance Ministry to reach the breakeven point of this the company, com
pared with the net expenses by the state related to the company in the amount of UAH 575.2 million in 2017.

The total economic effect calculated by us for the state under this option of the concession by 2022 is UAH 3.575 bn. At the same time, it is important to note that the company remains in the state form of ownership, and the depreciation of its fixed assets is covered by annual capital investments.

The second option of the concession provides for no annual fixed concession payment. Instead of this, it is assumed that the future management of Agrarian Fund should reduce the accumulated losses by 2022, which were at level of UAH 1.48 bn at the end of 2017. After abovementioned payments and profit tax paid, management is obliged to pay to the state 25% of the remaining net profit. Our calculation shows that for 2018-2022 this option of the concession will have an economic effect for the state in the amount of UAH 3.82 bn. Similarly, to the first version of the concession, management will also cover all depreciation expenses with capital expenditures.

We consider liquidation or privatization of Agrarian Fund inappropriate, since both of the options would form a net losses for the government in amount of UAH 1.99 bn and UAH 1.96 bn, respectively. As an alternative to the keeping the enterprise state-owned, we offer two options of the concession, each of which (considering the creation for the management of incentives and opportunities to act more rationally) will create a positive economic effect for the state budget in the amount of UAH 3.58 bn and UAH 3.82 bn by 2022.

31.06.2018


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