Investors are shaking apple trees – Newspaper Kommersant No. 163 (7364) of 09/06/2022

A major deal is brewing in the Russian horticultural industry. Agroholding AFG National and Gennady Timchenko’s Volga Group may sell the Yuzhnye Zemlya joint venture with more than 760 hectares of orchards to one of the largest apple producers Sad-Gigant. The purchase of existing orchards is becoming more profitable than laying new ones due to EU sanctions on the import of planting material into the Russian Federation.

The Federal Antimonopoly Service (FAS) approved the application of Service-plus LLC for the acquisition of 100% of the horticultural enterprise Yuzhnye Zemlya of the AFG National agricultural holding and the Volga Group structure of Gennady Timchenko. The decision is in the database of legal acts of the FAS.

For the summer of 2021, Southern Lands managed more than 760 hectares of high-intensity gardens in the Krasnodar Territory, as well as a storage facility with a capacity of 25 thousand tons, AFG National reported. The gross harvest last year exceeded 26 thousand tons of apples. Until 2025, it was planned to expand the area of ​​orchards to 2.5 thousand hectares and reach a yield of 45 thousand tons per year. The company’s revenue in 2021 grew by 37.3%, to 1.35 billion rubles, net profit was 97.53 million rubles. AFG National owns 65% of Southern Lands, the rest belongs to Volga Group Agro.

According to the Unified State Register of Legal Entities, Service Plus is owned by Razeta and Bekhan Khamchiev, who are associated with Sad-Gigant JSC, one of the country’s largest apple producers. Bekhan Khamchiev is on the board of directors of the company, and Razeta Khamchieva is listed as the owner of 74.95% of the shares in the 2020 financial statements. A meeting of shareholders of Sad-Gigant is scheduled for September 8, where it is planned to consider the issue of concluding an agreement with the Russian Agricultural Bank for the assignment of rights of claim for the obligations of Southern Lands. The Volga Group does not comment on the petition and the decision of the FAS. According to a Kommersant source, the company is considering various scenarios for agricultural assets. The AFG National holding, Sad-Gigant JSC and Rosselkhozbank did not provide any comments.

The purchase of “Southern Lands” will allow Sad-Gigant JSC to gain a foothold in first place in terms of garden area in the country. According to its own data, today the company manages more than 2 thousand hectares in the Krasnodar Territory, as well as about 1 thousand hectares in Ingushetia.

According to Igor Mukhanin, president of the Association of Gardeners, laying a new high-intensity garden costs 1.5-3 million rubles. per 1 ha, depending on the infrastructure. Operating farms can be estimated from 5 million rubles. for 1 ha, says the interlocutor of Kommersant in the industry. Thus, the cost of 760 hectares of gardens of the Southern Lands can be estimated at 1.14–3.8 billion rubles.

Tamara Reshetnikova, General Director of Technologies of Growth, notes that the purchase of existing farms today can be a more profitable way to expand a business than laying new plantations. For high-intensity apple orchards, planting material was mainly imported from Italy and Poland, and now these supplies are banned by EU sanctions, she points out. According to the expert, the import of seedlings is possible through third countries, but this affects prices.

The deal with Southern Lands is being considered against the backdrop of a possible change of control over the entire business of AFG National.

As reported by KommersantInvestcom, associated with UMMC co-owner Iskandar Makhmudov, bought the right to claim the holding from Rosselkhozbank and is recovering 3.35 billion rubles in court from AFG National structures. At the request of the parties, the court appointed an examination, instructing to evaluate the market value of 99.9% of AFG National, excluding debt.

Volga Group also owns 46% of Alma Holding, which has about 400 hectares of orchards in the Krasnodar Territory. According to Kommersant’s sources, French investors who own the remaining 54% want to sell their stake, which may be due to the expansion of sanctions against Mr. Timchenko. The Volga Group said that Alma Holding remains in the portfolio.

According to the US Department of Agriculture (USDA), Russia remains the largest importer of apples. Import in the season is estimated at 480 thousand tons, own production – 1.54 million tons. As Mr. Mukhanin notes, investors’ interest in the industry is maintained primarily by subsidizing the cost of laying orchards. According to Tamara Reshetnikova, as the market enters the mature stage, we should expect an increase in the number of M&A deals.

Anatoly Kostyrev