From Russia's Don Agro to SGX's Catalist with love

Singapore

AGRI and dairy firm Don Agro International is hoping to get some love as it makes a Valentine debut on Singapore Exchange's Catalist on Friday and becomes the first Russian firm to list its shares on the local bourse.

The S$5.1 million initial public offering (IPO) involving new placement shares priced at 22 Singapore cents a piece is a big deal for the firm, which operates winter wheat, sunflower and dairy cattle farms in southern Russia's black-soil blessed Rostov region.

For one, the listing plan has been on the drawing board for at least five years, Don Agro's executive chairman Evgeny Tugolukov told The Business Times.

In fact, it could have happened last year but the company yanked a draft prospectus for the IPO that was filed in June 2019 and lodged a fresh preliminary offer document in November that included the six-month showing for financial year 2019 to comply with SGX's requirements.

"The SGX is very conservative and we love it. They needed some clarification...just the technical issues as we are the first Russian company in Singapore (on SGX). They checked us in and out many times. We are very transparent to investors," Mr Tugolukov explained.

With a controlled land bank of some 53,000 hectares, of which about 41,000 hectares are arable land, Don Agro produced 80,000 tonnes of crops and 12,000 tonnes of raw milk in FY2018.

In the year ended December 2018, Don Agro made a net profit of S$6.4 million on the back of a revenue of S$24 million.

In the first half of FY2019, net profit more than doubled to S$4.3 million from the previous corresponding period a year ago on the back of a nearly 50 per cent jump in revenue to S$11.6 million.

Several factors could sweeten Don Agro's proposition to investors.

In 2018, Russia was the world's largest wheat exporter, second largest producer of sunflower seeds and ranked fourth in the world in terms of milk production. The Russian ruble's depreciation is also aiding the country's competitiveness in the agri realm.

In addition, as a leading agriculture firm in Russia where the government has adopted a food security doctrine to aim for self-sufficiency, Don Agro could stand to benefit from sector-friendly policies.

While the company has no fixed dividend policy, it stated in the prospectus that subject to certain factors, the board intends to recommend and distribute dividends of up to 20 per cent of net profit for three consecutive financial years up to 2021.

Don Agro is however not the first Russian presence in the Singapore bourse; six years ago, Moscow-listed energy giant Gazprom was granted an introductory listing for its Global Depository Receipts (GDR) on SGX's mainboard.

According to Mr Tugolukov, many more mid-sized Russian companies are keen to venture out to raise their international profile.

Generally, Russian firms are drawn to London and New York bourses as preferred listing venues, although many more have picked the home base (Moscow Exchange), particularly since the introduction of sanctions in 2014, which fuelled a sharp sell-off in Russian assets abroad.

Such sanctions-related fears, rightly or wrongly, may dog Don Agro, although Mr Tugolukov, who is the firm's majority owner, remarked: "We are pure business people. There is no entity or individuals in our company under the sanctions."

Nevertheless, international sanctions are a risk factor. The company's own prospectus states that international sanctions, and their possible expansion, could materially and adversely affect the value of investments in Russia, as well as the company's operations.

Towards this end, it has provided an undertaking to SGX to remediate and resolve material sanctions risks that arise post-listing within a reasonable period, and seek a voluntary trading suspension or delisting if it is unable to do so to the satisfaction of the bourse operator.

The choice of SGX as the preferred listing venue seemed an obvious one for Mr Tugolukov, who has been living in Singapore as a permanent resident for over a decade since he uprooted from Moscow in 2007 to expand his business and raise his family.

He has also been the honorary business representative for Russia to International Enterprise (IE) Singapore since 2013.

The commercial factors seemed obvious enough given Singapore's status as a financial hub and gateway to Asia plus the fact that South-east Asia is the world's top wheat consumer.

A close second choice was the Toronto Stock Exchange. Unsurprisingly, Don Agro's chief executive, Marat Devlet-Kildeyev, a Canadian citizen, admits he was more inclined to the Canadian bourse but at the end "Singapore won because of our interest in Asia".

The Russian firm is pitching its appeal to investors even as volatility has heightened in financial markets amid the novel coronavirus scare.

Mr Tugolukov is unfazed. "The beauty of becoming a public company is that we have to think strategically. Something happens every day and (then), we don't remember it (anymore). We believe that we need to show the results so that people can be certain about us and we can stay with the growth," he says.