November 3, 2008


Cherkizovo abandons investment plan in Samara


Cherkizovo Group will not invest in four poultry plants in Samara region, and new owners are being sought for the Ptitseprom factories.


Cherkizovo Group refused to purchase four poultry plants in Samara Region. Ptitseprom, the owner of the poultry plants, has already started search of new investors.


At the meeting of the Administration of Samara Region on 29 October, Viktor Altergot, the Deputy Minister of Agriculture and Food of Samara Region said that Cherkizovo Group had postponed plans for reconstruction of four poultry plants in the region for some years. The project was planned within the means of the agreement on development of poultry production complex in the region, which was signed with Samara Administration on July 2008.


According to market operators, when the company was signing the agreement, it could rely on some benefits for taxation and business, as well as the Administration's support in relation to land issue solutions. Moreover, this year the company NAPKO where Igor Babaev (who also controls Cherkizovo) is one of the co-owners, agreed with the Administration of Samara Region on lease of 50,000 hectares of land in Sergievsky district until the end of 2008. In future the company was going to purchase the leased lands.


Cherkizovo was going to reacquire the following poultry plants from OAO Ptitseprom, Zhigulevskaya, Krotovskaya, Podbelskaya and Timashevskaya. It had planned to develop broiler production there. Experts estimated the cost of the plants to be US$15-20 million. The potential production capacity of the plants is 20,600 tonnes of poultry per year.


However, the plants have not been in operation since 2003, and the region's Ministry of Agriculture says there is no equipment at the facilities.


Maria Zharkova, press-secretary of regional Ministry of Agriculture said that Cherkizovo had postponed the project because of difficulties in raising the finance for reconstruction in the current financial crisis, estimated to be 5 billion rubles (US$185.5 million)


Cherkizovo Group is one of Russian largest agricultural holdings, which specialises in meat processing, pig and poultry breeding. The company's revenues totaled US$840.8 million in 2007, EBITDA was US$115.3 million. The Group is controlled by family of Igor Babaev, the Chairman of the Board of Directors of OAO Cherkizovo Group. Cherkizovo has no assets in Samara Region.


According to the data of the regional Ministry of Agriculture of Samara Region, total production output of poultry plants of Samara Region is under 30,000 tonnes per year, while regional consumption is 150,000 tonnes.


On 29 October, Cherkizovo officials denied that the Group had declared an intention to purchase the Ptitseprom plants. They said the option had been discussed but no decision had been made.


However, Yury Fokin said that the two companies had reached agreement during the summer. He said Ptitseprom had fulfilled all its obligations but Cherkizovo had not, and his company is now seeking other investors.

At present, companies direct their efforts to implementation of already started projects, Dmitry Rylko, the General Director of Institute for Agricultural Market Studies (IKAR) told Meat Russia.
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