Government controlled agricultural exporting company Agrexco is seeking a debt settlement after losing €33 million in 2010, which resulted in a shareholders' equity deficit of €13 million. The company's bondholders are scheduled to meet on Thursday to consider demanding immediate repayment of €32 million (NIS 150 million).
The government owns 30.3% of Agrexco, and controls its board of directors. The Agricultural Marketing Board owns 55.3%, and Tnuva Food Industries Ltd. owns 11%. Most of the company exports go to the UK, Germany, France, the Netherlands, and countries in Eastern Europe. Its main brands are Carmel and Alesia. It handles business ties with 2,200 growers in Israel, exporting 400,000 tons of produce a year.
In view of Agrexco's financial condition, Midroog Ltd. downgraded the company's bonds from A3 to junk-bond status of B1 with a "Negative" outlook. The downgrade means that the company will likely not be able to repay its debt in full.
Agrexco's losses led its auditor to attach a "going concern" warning to the company's financial report. The auditor, like Midroog, says that Agrexco's ability to repay its debts "partly depends on the conversion of short-term loans into long-term loans, and reaching a settlement with its bondholders."
In late 2007, Agrexco issued non-tradable bonds to institutional investors. The balance of this debt is €32 million, and the company's outstanding financial debt is €83 million, while its cash reserves are less than €10 million.
Signs of Agrexco's deterioration emerged earlier this month, when the bonds' trustee, BDO Ziv Haft announced that the company had not submitted its financial report for 2010, so the trustee could not evaluate the company's ability to meet its liabilities.
According to the figures that Midroog appended to its rating downgrade, Agrexco's revenue in 2010 was stable at €489 million. However, loss of market share, crises in Euro Bloc countries, the weakened euro, and weather problems in Israel resulted in an operating loss on current operations of €13.7 million.
A source in the agricultural export market said today that, in the past year, Agrexco was abandoned by many farmers, and its domestic market share has fallen to less than half.
Agrexco also reported a one-time loss of €16.7 million, mainly on write-downs on advances paid for agricultural produce insurance. The company also made a €2.6 million provision for writing off deferred taxes.
In April, Midroog downgraded Agrexco's bonds from A2 to A3, because of the erosion in company's results for the first half of 2010. The company predicted an operating loss of €2.1 million and a net loss of €6.5 million for 2010 as a whole; its actual operating loss was €25 million and a net loss of €33 million.
Agrexco said in response, "There was a change in the company's management six months ago. The new management found that the company was operating with a structure that did not fit its business reality, resulting in a gap between its expenses structure and its income.
In December 2010, the government injected NIS 55 million into Agrexco, as part of a restructuring plan ahead of a planned privatization, based on a government decision in 2008. For the privatization, Kesselman & Kesselman pwc Israel estimated Agrexco's value at NIS 600 million. Kesselman & Kesselman were not available for comment today.
Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2011
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