Last week, Adecoagro (AGRO), a South American agricultural company, announced that some of its shareholders were selling shares through a secondary offering. In particular, the company stated it would be offering "8,700,000 of its common shares to be sold by certain selling shareholders, subject to market and other conditions," plus a "30-day option to purchase up to an additional 1,305,000."
On Thursday, January 31, the company increased the size of the secondary, priced it and noted that it was a selling "shareholder", not shareholders. Now, it is a "secondary offering of 13,900,000 common shares offered by HBK Master Fund LP at a price per share to the public of $8.00," with "a 30-day option to purchase up to an additional 2,085,000."
Adecoagro is an agricultural company in South America. Adecoagro owns over 283 thousand hectares of farmland and several industrial facilities spread across Argentina, Brazil and Uruguay, and the company produces over 1 million tons of agricultural products annually, including corn, wheat, soybeans, rice, dairy products, sugar and ethanol, among others, and also produces electricity.
HBK Master Fund is or was a major holder of Adecoagro. When AGRO filed for its IPO at the start of 2011, which was for 28.54 million shares, it listed that its principal shareholders were Pampas Humedas LLC (33.95%), an affiliate of George Soros' Soros Fund Management, LLC; HBK Master Fund LP (25.59%), an affiliate of HBK Investments L.P.; Stichting Pensioenfonds Zorg en Welzijn (13.51%); Ospraie Special Opportunities Master Holdings Ltd. (11.71%), an affiliate of Dwight Anderson's Ospraie Management, LLC; and Al Gharrafa Investment Company (6.48%), a wholly owned subsidiary of Qatar Holding LLC.
HBK Investments, which also goes by HBK Capital Management, is an alternative investment management firm that gets its name from the initials of Harlan B. Korenvaes, a former Managing Director of Merrill Lynch who was in charge of the company's convertible arbitrage trading and sales. Korenvaes left Merrill Lynch and founded HBK in October of 1991. Korenvaes is no longer an employee of HBK, which is now managed by David Costen Haley, who was previously a partner in the corporate and securities section at the Andrews & Kurth law firm.
This secondary for 13.9 million shares equates to nearly 11.4 percent of Adecoagro, while the 30-day option adds another 1.7 percent. That means that this secondary, in total, is selling a larger pile of AGRO shares than is currently held by any of its shareholders except Soros Fund Management, which, according to its last 13F filing, increased its stake in Adecoagro from 25,385,678 to 25,911,633 shares. Though Soros' fund had sold some shares of Adecoagro after the IPO, the fund acquired shares in the company over the past two quarters and owned a 21.5% stake in AGRO when last reported.
It is entirely possible that Soros Fund Management, or other major shareholders such as Ospraie Management, will use this secondary to increase its stake in Adecoagro, but such is no certainty. Moreover, these funds report their holdings on a quarterly basis and any changes being made right now would not be reported until the middle of the second quarter. In about two weeks, 13-F filings will indicate what changes, if any, Adecoagro's large U.S. holders may have made in the fourth quarter of 2012.
Given this substantial secondary, which is roughly half the size of the initial IPO, shares of Adecoagro appear likely to hover near the secondary offering price until some other and further information comes to market, but at the same time, this $8 pricing may be a near-term bottom for the company. Such secondaries often indicate decent prices at which to initiate or add to an existing position.
In 2012, AGRO shares performed relatively flat, recognizing a gain of about 2.5 percent between the start of 2012 and 2013, but also losing around twenty percent of their value through the last five months of the year. Much of Adecoagro's weakness in late 2012 was due to currency fluctuations, where the U.S. dollar strengthened against the multiple South American currencies within which Adecoagro does its business. The company noted in its recent 6-K filing that:
"During 2012, we experienced a 10% depreciation in the Brazilian Real and a 14% depreciation in the Argentine Peso, in each case, against the U.S. dollar, which has resulted in the recognition of foreign exchange losses for our U.S. dollar denominated debt. In addition, the depreciation of our functional currencies also resulted in mark-to-market losses in respect of currency forward contracts in Brazil. As a result of these factors, we anticipate that our net income for 2012 will likely range from $1.0 to $10.0 million, representing an approximately 98% to 82%" decrease, as compared to 2011.
Some of the greatest prospects for Adecoagro in 2013 would therefore include increased pricing for agricultural commodities and a weakening U.S. dollar. Nonetheless, other potential catalysts would certainly include further accumulation by Soros Fund Management, Ospraie or another significant holder, as well as the potential initiation of a position by some new and respected investor.