Ukrainian egg giant Avangard denies investigation claims

By bne IntelliNews February 6, 2012

bne -

Avangard, Ukraine's leading egg producer and one of the country' largest agribusinesses, is fighting claims in the media that owner Oleg Bakhmatyuk is under criminal investigation.

A report posted on ukranews.com last week said that Avangard has been accused by the State Financial Inspectorate of illegally receiving UAH137m ($17m) worth of subsidies under state agricultural support programs. The report also claimed that officials have accused Bakhmatyuk of conspiring with state and banking officials to obtain subsidized loans.

However, whilst the report - bearing all the hallmarks of a paid smear campaign - disappeared after a few hours, an English translation that was circulated shocked international investors. The surprise was only compounded by the fact that in the translation the Ukrainian currency figure was incorrectly replaced with a dollar sign, thus suggesting a crime whose value was eight times greater than in the original report.

As a result, Avangard's Eurobonds plummeted 8 percentage points on February 2, and a further 6 pp the next day, before starting to recover after the company officially denied the reports. The share price, already trading at a steep discount to peers such as MHP, remained stable.

Bakhmatyuk circulated a letter to investors on February 2 in which he accused the former owner and CEO of VAB bank, Sergei Maksimov, of being behind the attack. Bakhmatyuk acquired the troubled bank in 2011, only to accuse Maksimov of having embezzled $200m, and request that the prosecutor general's office investigate.

Avangard held a conference call on February 4 rejecting the report and insisting that there is no ongoing investigation against the company. Bakhmatyuk suggested Avangard might buy back its Eurobonds, and that it's likely to launch a non-deal roadshow in order to explain the situation.

"We should note that the aforementioned website does not have the reputation for being a reliable information source," writes Dragon Capital's Tamara Levchenko. "Moreover, the report cited no official or other reliable sources, particularly the website of the State Financial Inspectorate, where such information would normally be published."

"While it is difficult to verify whether Avangard's claims are indeed true (or whether there is any truth to articles published in the local media), we find the fact that the company now has an official position to be reassuring," writes Renaissance Capital's Konstantin Fastovets in a research note. "Overall, we believe that the current amount of negative sentiment regarding Avangard's shares may be somewhat too high, because even if the company does have certain disputes with the Ukrainian government, the lawsuits are unlikely to be substantial, in our view."

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