UAG IPO: Planting the seeds for Uruguay’s stock market

Montevideo’s stock market – get ready. Union Agriculture Group, one of Uruguay’s top landowners and Latin America’s biggest farm firms, is finally ready for its long-awaited IPO.

There have been a couple of changes of plan along the way. The agricultural powerhouse scrubbed a $287.5m New York launch in 2011 because of poor market conditions. Now it plans to make its market debut through a $50m to $100m domestic listing, probably in late April.

The IPO — the first in Uruguay since 2006 — will bring the number of companies with equity quoted on the Montevideo bourse to just eight.

And of the corporates whose shares are currently listed, only three or four trade, according to Martín Rodríguez, head of investment at Integración, one of Uruguay’s four pension funds. People working on the UAG deal mention just Industria Sulfúrica, or Isusa, a fertiliser company, Gralado, which owns the Tres Cruces shopping centre and bus terminal; and Frigorífico Modelo, an ice, juice packing and agriculture firm.

So why would UAG, whose executive chairman Juan Sartori freely admits is “ambitious and has more dreams than many” want to confine itself to such a small exchange, where its market capitalisation will likely be bigger than that of those other three companies combined?

The short answer is that it doesn’t. The New York listing plan for UAG Corp, the holding company, isn’t dead, it’s just on hold for now, Sartori told beyondbrics. (To be clear, what is being listed in Uruguay is UAG SA, the Uruguayan operating company; it has no foreign assets and its activity is concentrated in Uruguay.)

Here is Sartori on the prospect of a New York IPO for his company, which grows soya, wheat and rice, raises cattle, sheep and dairy herds and produces honey: “This doesn’t mean we’re not IPO-ing in New York or abroad. Listing the local subsidiary was one of two objectives. We still expect an IPO some day, when conditions are a bit better. We’ve already done all the work.”

What will the appetite in Uruguay be then? Uruguay’s pension funds, known as AFAPs, are required to invest only in domestic companies; corporate trusts, often in the property sector, are more common than share listings.

So UAG will give them something chunky to invest in, while helping to open up the domestic market — an aim Sartori says is part of the motivation for the issue. Rodríguez at Integración says Colombia’s market used to be similarly small a few years ago until a few issues helped dispel fears among owners of opening up their companies and possibly having to have an institutional investor’s representative on the board.

Will the AFAPs bite? Rodríguez is waiting to see the issue price, which has not yet been set. But he cautioned: “Our desire to develop the market doesn’t mean we’re willing to pay any price.”

UAG expects much of the interest to come from pension funds. A $50m issue would represent about 10 per cent of the company, he said. Sartori expected strong retail interest, saying: “We’ve been surprised today by the number of people calling.”

Farming is good business in Uruguay, attracting a lot of interest from regional companies and from European ones. The investment-grade country is financially stable, farm land is top notch and it is also cheaper than Argentina, Brazil or New Zealand.

Sartori says he won’t increase the offer, whatever the demand. The money raised in the listing will be used to pay for land (UAG expects the IPO proceeds to boost land under its management to 124,000 hectares from 89,070 now), and UAG recently raised $110m via a private placement.

That deal, incidentally, proved that there was “no added incentive” for a costly international IPO, he said, adding: “Right now, there is the same or better value in an IPO in cheaper markets.”

UAG says its first focus was on buying enough land to acquire scale and achieve efficiencies and its second was to integrate the land as a big producer. It is now looking at how to add value and integrate the production chain. Sartori said part of the proceeds from the private placement were earmarked to start investment more into processing to become a value-added producer.

As for the company’s financials, UAG has grown from a 6,000-hectare operation in 2008 to nearly 16 times that size today and expects to turn its first profit in the year to June 2013. Sales in the year to June 2013 are expected to have more than tripled, to some $100m (they were $31m in 2012 and $12.1m in 2011).

Will UAG help grow the Montevideo stock market in the same way? Time will tell, but the company certainly hopes it will be planting the seed.

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