S&P downgrades Agroton to CCC, issues negative outlook
Standard & Poor’s downgraded the credit rating of farming company Agroton (AGT PW, AGTPW) to “CCC” from “CCC+”, the agency reported on April 12. It cited the company’s worsened liquidity as the basis for the downgrade. Agroton’s cash and equivalents decreased to USD 6.5 mln as of March 25, 2013 from USD 20.4 mln as of end-3Q12, according to S&P. Moreover, most of the cash (USD 4.5 mln) had been allocated at Bank of Cyprus accounts, which implies possible trouble with access to it. In turn, the agency’s analysts foresee a risk that Agroton will be unable to pay the coupon for its USD 50 mln notes (USD 3.1 mln payable in mid-July).
The market reacted sharply negative to the news, sending Agroton stock crashing 55.8% in Friday’s trading session. In May 2012, when Agroton was downgraded by S&P to “CCC+” from “B-“, the stock lost almost 50% in seven consecutive sessions.
Meanwhile, another rating agency which covers Agroton, Fitch Ratings, has not downgraded the company’s bond rating of “B-“ since assigning it in 2011.
Alexander Paraschiy: We do not share pessimism of S&P analysts about the company’s liquidity and solvency. The last year was successful for Agroton’s farming operations and nothing points to the company facing trouble with liquidity.
While we admit the company lacks transparency in its financial and operating disclosures, we expect some improvements this season. In particular, we expect the company won’t include the qualified opinion of its auditors in its annual report. Based on its good farming segment results, we expect the company will report strong financials for 2012. Therefore, we believe the current price of Agroton stock provides a good opportunity for bottom-fishing.