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Watching an agricultural-financing deal get done in minutes

11 november 2011, 10:25
0

It was a fascinating lesson for me in how quickly a deal can get done in Kazakhstan’s booming agricultural sector.

It started when I agreed to be a matchmaker in Astana for a Western agricultural-equipment dealer and a Western banker.

The dealer needed financing to help him sell $10 million worth of equipment to a huge farm in Akmola Province. The banker was eager to make his first agricultural-market loan and to make a connection with the high-powered Akmola operation.

I had known both of these intrepid and honest men for a couple of years, so when I learned the equipment dealer needed financing, I decided to introduce them.

We met at the Rixos Hotel in Astana. The banker was in a rush, with a schedule that had him scurrying from one business meeting to the next the entire day.  He told me he could give the farm-equipment dealer only 15 minutes.

As it turned out, 15 minutes was twice as much time as was needed to close a deal. The banker and dealer shook hands on a financing arrangement in eight minutes.

That didn’t mean the deal was wrapped up, of course. The banker turned the dealer over to a bank vice president who would do the required credit checks, prepare the loan documents and do other follow-through. And the dealer would need to line up export credits from a government trade-financing agency in his home country.

But I could tell that both the banker and dealer really wanted the deal done – and that it would get done. I was blown away that a $10 million deal was struck so quickly.

I was also blown away by how much I learned about Kazakhstan’s agricultural sector in the eight minutes the men talked and in three or four minutes of additional conversation I had with the dealer after the banker left.

The banker had done his homework. “The market for used farm equipment here is excellent,” he told the dealer, who nodded.

The banker’s implication was that he was financing equipment whose value would hold up over time. Financing equipment whose value would plunge in a couple of years – in other words, whose collateral value would hit rock bottom quickly – would not give any banker comfort.

When the banker left, I asked the dealer a few questions about the potential of the Kazakhstan farm-equipment market.

“It’s incredible,” he said.

“If Kazakhstan were to buy all the farm equipment it needed at one time, how much would the deal be worth?” I asked.

A couple of billion dollars, the dealer replied.

“But you’ve already sold a lot of equipment here,” I said.

“Yes, but buyers have begun replacing a lot of the equipment I sold them 10 years ago,” he said.

I was stunned that a tractor, tiller, seeder or other piece of farm equipment – each of which cost hundreds of thousands of dollars -- could last only 10 years.

So I called my buddy Mike Slattery, the young Nebraskan who runs a KazBeef cattle ranch in the village of Mamai, three hours north of Astana.

Mike, who grew up on a ranch, said that a piece of equipment that’s run every day can indeed wear out in 10 years, although a more common figure is 15 to 20 years.

He was speaking of American farm operations, however – and most are small compared with Kazakhstan operations.

A large farm in the United States might be a few tens of thousands of acres. In Kazakhstan, a big spread is hundreds of thousands.

It makes sense that with a farm that’s, say, 300,000 acres, you’d have to run a tractor and other pieces of equipment almost every day.

Another piece of good news for farm-equipment dealers doing business here is that Kazakhstan’s grain harvests have been jumping almost every year. This year, in fact, the Agriculture Ministry is expecting the best harvest ever – 25 million tons or so.

Planting, tending and harvesting a crop that is expanding every year means more demand for farm equipment, of course.

Because of the continuous wear and tear on equipment, Mike noted, large Kazakhstan operations have one or more equipment mechanics on board full-time.

The big operations do a good job of maintaining their equipment, he said – but the spreads are so huge that equipment wears out quickly no matter how well it’s maintained.

That’s good news for my friend the equipment dealer and his competitors. And for my friend the banker who wants to do more agricultural-market financing.

Gentlemen, you both owe me one.


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