The largest Czech investment firm PPF Group has completed the acquisition of Russian agricultural hold Rav Agro-Pro, which disposes of huge tracts of arable land in the fertile Chernozem (“Black Earth”) region in the southwest of European Russia. PPF says the investment is at least mid-term and doesn’t rule out a possible IPO. While the country’s agricultural sector has huge growth potential, powerful allies in the government are also key to success. PPF owner Petr Kellner has been cultivating such ties since the first wave of privatization in the early 1990s.
PPF confirmed to Czech Position that Dutch-registered Bavella BV (in which the PPF Group has an 80-percent stake and UK-registered investment firm PR Capital Group has 20 percent), purchased 100 percent of Rav Agro-Pro shares from Kemp Commerce Ltd., a company registered in the British Virgin Islands. But PPF declined to disclose the value of the deal or who represented Kemp Commerce Ltd. in the negotiations and Rav Agro-Pro is also keeping details of its holdings quiet.
Two years of planning
The only bona fide information available about Kemp Commerce Ltd. relates to the sale of Rav Agro-Pro to Bavella BV, though according Despite PPF’s claim that Chvatil represented the interests of private shareholder not connected with PPF, it is safe to say that upon his appointment an entity controlled by the PPF Group, or Petr Kellner personally, had already acquired a significant stake in Rav Agro-Pro.to the agro-holding’s publically available records, the British Virgin Islands company held 100 percent of Rav Agro-Pro shares as of April 1, 2011. Company records also show that a PPF top manager, Ladislav Chvátal, was chairman of the Rav Agro-Pro board until February 11, 2011. PPF, however, told the Russian daily Vedomosti that as chairman of the board Chvatál represented one of the company’s private shareholders — with no connection to PPF.
Rav Agro-Pro was established in 2005, shortly after land reforms in Russia enabled foreign subjects to purchase agricultural land. In July 2008, when the company announced plans for an IPO, which did not take place, Reuters reported that the owner of 99.67 percent of the company’s shares was Russian Agricultural Ventures, the ownership structure of which is as follows:
- RP Capital (31.4 percent)
- Colglide Ltd.— controlled by Israeli grain trading company Rodemco, owned by Roni Yitzhaki (31.4 percent)
- Lite Venture Holding Ltd. (16.1 percent)
- Kosmoxan Investments Limited, owned equally by Igor Khaifits and Gadi Bittan, who in 2010 at least was Rav Agro-Pro’s managing director (11.1 percent)
- Black River Commodity Investment Partners — one of the funds of Black River Asset Management, a group of funds belonging to US giant Cargill (6 percent)
Ladislav Chvatál, who has worked for PPF for 17 years, was appointed to the Rav Agro-Pro board in 2009. “His task was obviously to buy up the fragmented shareholdings in the company,” the Czech daily Hospodářské noviny (HN) concluded. Despite PPF’s claim that Chvatál represented the interests of a private shareholder not connected to PPF, it is logical to conclude that upon his appointment an entity controlled by the PPF Group — or Petr Kellner personally — had already acquired a significant stake in Rav Agro-Pro.
HN also points out that a certain Vladimir Demutsky became the agro-holding’s chief financial officer (CFO) at the beginning of 2010, prior to which he worked for PPF. According to an unnamed source close to Rav Agro-Pro quoted by the Russian daily Kommersant, at the start of this month PPF Group controlled 70 percent of Kemp Commerce Ltd., and is in the process of acquiring the remaining 30 percent through Bavella BV, which is already 100-percent owned by PPF Group.
Rav Agro-Pro has its registered headquarters in Voronezh, southwestern Russia, the administrative center of the region where the firm has 60 percent of its arable land. According to the company’s latest report, it controls 164,000 hectares of agricultural land, though it is not clear what percentage of that land the firm owns on freehold and what portion it has on lease. The company has refused to divulge this information.
Its lands are also in the neighboring Orel, Penza, Rostov and Kursk regions, which together form the Chernozem or “Black Earth” region, named after the rich dark soil in the region, which is among the most fertile in the world.
At present Rav Agro-Pro cultivates wheat, barley, sunflower, sugar beet and potatoes and has grain elevators in the Voronezh region with a capacity for 80,000 tons. The firm’s assets also include a pig farm with 3,700 heads and large dairy and cattle farm. “The goal is to create vertically integrated agricultural business; however, livestock is to be a main focus,” PPF Group spokesman, Alexei Bechtin, told Czech Position when asked which area of Rav Agro-Pro’s business PPF will concentrate on developing.
Various analyses of the Russian agricultural sector indeed indicate that livestock farming has huge potential for growth. Although world grain prices have rocketed in recent years, in Russia the sale and export of the commodity is highly regulated by the state in order to ensure adequate supplies and prevent large price fluctuations on the domestic market. By contrast, the market for poultry and meat is far more liberal, and the government has introduced a range of incentives aimed at boosting domestic meat production and reducing imports. According to US Department of Agriculture statistics, Russian poultry and meat imports increased by 78 percent between 2000 and 2008.
Speculative or long-term investment?
Whether PPF’s acquisition of Rav Agro-Pro marks the beginning of active involvement in the agricultural sector — or is Voronezh region governor, Alexei Gordeyev almost immediately the takeover was approved announced plans for several large-scale agricultural projects for which sizeable plots of farming land are required.a speculative investment the aim of which is to cash in on expected growth of arable land prices and agricultural assets — remains to be seen.
Anatoly Vakulenko, an analyst with the investment firm Finam, says that Russian arable land in itself currently represents a highly promising investment. “In Russia, land designated for agriculture is considerably underpriced even in relation to income generated through leasing,” he told Kommersant. Vakulenko says that prices for 1 hectare of agricultural land currently range between 10 and 45 rubles, and between 30 and 40 rubles in the Chernozem region — but he forecasts that prices could rise by a staggering 300 to 400 percent within 10 years.
Russia’s Federal Antimonopoly Service okayed the purchase of Rav Agro-Pro by Bavella BV at the beginning of July, and according to Kommersant’s sources in the agricultural sector in Voronezh, the region’s governor, Alexei Gordeyev—served as agriculture minister from 2000 to 2002—almost immediately afterwards announced plans for several large-scale agricultural projects for which sizeable plots of farming land are required. “The Czech fund could easily sell part of Rav Pro-Agro’s land to such an investor for a decent profit,” the source said.
“We consider our investment to be at least mid-term (up to long-term),” PPF Group spokesman Bechtin told Czech Position when asked about its plans for the agro-holding, adding that the company intends to introduce western management methods and modern farming technologies in order to boost output to levels of similar sized holdings in North America. “We will start transferring this know-how by bringing in skilled agricultural managers from comparable markets, who will work side-by-side with local specialists and Czech managers,” he said.
Judging by PPF’s other investments, there is no reason to doubt this declaration of intent. For example, in September 2008 when the group bought 39 percent in the large electronic goods retailer Eldorado, a number of Russian market observers speculated that the Czech fund had snapped up the stake simply because it was available at a favorable price and would sell it on for a healthy profit as soon as a buyer emerged with the right offer.
PPF, however, harnessed the chain as a vehicle for the Russian branch of its retail loan company Home Credit, which is now the largest point-of-sale loans provider in Russia with an estimated 27-percent share of the market. In 2010, PPF gained a majority stake in Eldorado when it bought up Italian Generali Group’s 11 percent stake in the retailer.
Czech oligarch with powerful allies
If, as is probable, the PPF Group actively develops Rav Agro-Pro, it will serve that founder and owner of around 95 percent of PPF Group, Czech billionaire Petr Kellner, is highly confident about his position in Russia. Kellner is unique among foreign investors in Russia in terms of diversity of his investments and assets and level of involvement in the real economy.
“In order to breakthrough and prosper in the Russian agricultural sector, it’s necessary to have solid allies on the federal level,” leading expert with the consultancy Center for Political Conjecture, Dmitry Abzalov, told Czech Position. For example, agro-holdings with the right connections can secure highly advantageous financing for farming technology from the state-owned agricultural fund Rosagroleasing.
More generally, conducting business on a large scale in Russia almost always requires connections within state organs so as to ensure that business rivals do manipulate laws and the administration against one’s interests.
‘Peter the Great’
Kellner — the richest citizen from the fomer East European Soviet Satelitte states — is unique among foreign investors in Russia in terms of diversity of his investments and assets and level of involvement in the real economy. He first arrived in Russia in the early 1990s in time for the first round of privatizations — the largest redistribution of wealth in modern history, during which Russia’s now super rich oligarchs established their first fortunes.
Arriving with the experience — and millions of dollars — Kellner gained from the coupon privatization in the Czech Republic (PPF stands for “First Privatization Fund” in Czech), he began buying up a wide range of assets, including over a dozen enterprises. “According to critics, most of them were either crudely resold, the assets of some were simply channeled out, while others were closed down,” the Russian weekly Itogi wrote in 2009.
Kellner set up an association of funds, giving it the modest name of Peter the Great. The fund took over several other considerably large funds, including Neft I Energie and Nedvizhimost (“Petrol and Energie” and “Real Estate”) and acquired a large number of shares in Russian energy power generation and distribution giant RAO UES.
Although Kellner reported a loss of up to $500 million in the crisis of 1998, it is known that he began to rapidly sell off the majority of his Russian assets a year beforehand.
In 2005, Kellner, through his Jersey-registered investment fund PPFI, acquired a 38.46 percent stake in the large Russian insurance company Ingosstrakh, which was already majority-owned by Oleg Derepaska’s company Bazel. Derepasko had wanted to purchase the stake sold to Kellner by Russian financier and banker Alexander Mamut, and when he discovered that Kellner was planning on selling a portion of his stake to Generali, Derepasko called a general meeting of shareholders which approved raising the insurer’s basic capital with a large share emission.
Friends in high places
Kellner’s PPFI successfully challenged the move by Bazel (Basic Element) in the Russian courts and PPFI and Generali still hold the minority stake. His successful resistance against Bazel’s attempt to squeeze him out of Ingosstrakh was a clear indication that he has powerful allies in Russia. The fact that Kellner has such large business interests to protect in Russia unsurprisingly gives rise to speculation as to what favors he may provide for his Russian allies in his home country.
“It is known in certain business circles that Kellner has strong ties with Alexander Mamut and Suleyman Kirimov,” Dmitry Abzalov told Czech Position. He also points out that his partnership with Alexander Nesis is highly significant, as the latter has significant influence in the financial sector and banking.
A native of Dagestan, Karimov established his fortune through Nafta-Moskva fuel trading company. His current assets include the majority shareholder of the fertilizer producer Uralkali, which is listed on the London Stock Exchange (LSE), and a 38 percent stake in the gold producer Polyus Gold. Karimov is the representative for Dagestan in the Federation Council, the upper house of the Russian parliament.
In June, 2008, Karimov sold 70 percent of his stake in the mining company Polymetal to Kellner’s PPF Group, Alexander Nesis, and Mamut. PPF Group holds a 24.82 percent stake in Polymetal and 29.9 percent of shares in Nomos-Bank through the Dutch-registered Russia Finance Corporation B.V.
The fact that Kellner has such large business interests to protect in Russia unsurprisingly gives rise to questions as to what favors he may provide for his Russian allies in his home country.