Igor Mazepa and Concorde Capital’s Research team discuss whether the state needs to subsidize MHP
Ukrainian President Zelensky recently offered to compare the amount of fiscal support for MHP and the amount of dividends that its shareholders gained in 2017-2018. Concorde Capital analysts took up the offer and calculated MHP gained about UAH 2.5 bln (USD 88 mln) in state support. Yet the dividends paid were nearly twice as much at USD 160 mln. State support was one of MHP’s sources of financing, at the same level as financing from shareholders and creditors – comments Igor Mazepa.
MHP used all its existing sources for financing rather effectively, which can be proven by the relations of foreign investors with MHP. The company is more trusted than the Ukrainian government, which is demonstrated by MHP’s ability to attract financing from abroad at a lower rate than the Finance Ministry is able to.
Last week, the company issued an eight-year Eurobond at 6.95%, while Ukraine’s MinFin had to settle for an 8.99% rate on its five-year Eurobonds issued last year. Between 2006 and 2012 – when the company still hadn’t paid dividends and used all its available costs for investment – MHP received USD 560 mln in state support and invested USD 1.39 bln in its development, including the construction of a massive poultry factory.
Had it not received this support, MHP would not have been able to build this poultry factory, or would have built it later – says Igor Mazepa. But then there would have been fewer jobs in country, lower GDP growth and less income in foreign currency. Or it would have built the plant, using up its funds. In which case, it would not have been able to pay its debt in 2014-2015 and would have defaulted like many of its corporate colleagues, some of whom have yet to emerge from the financial crisis.
To summarize, between 2006 and 2018, MHP gained state support in the amount of USD 950 mln, invested USD 2.289 bln in the acquisition and development of its assets and paid USD 490 mln in dividends. That’s the basic math.