‘A Bet on the War’: Vineyard Exposes Risks in Front-Line Moldova

(Bloomberg) -- As the only Moldovan company listed on a foreign stock exchange, Purcari Wineries Plc is a barometer for risk sentiment in the small nation situated precariously on the edge of Russia's war against Ukraine. So far, it's been stormy.

From Purcari's immaculately tended vineyards, visitors can see the winding Dniester River as it traces the border with Ukraine, as close as half a mile away. Transnistria, the breakaway pro-Russian territory of Moldova that saw some destabilizing bombings a week ago, is two miles further. The main border crossing to the key Ukrainian port of Odesa is just down the road.

It's in part because of that proximity that Purcari's stock lost around 40% of its value in the early days of the Russian war in Ukraine, before clawing some back as Moscow's troops withdrew from near Kyiv in the north and the conflict seemed to shift east.

On April 21, the day a Russian general announced that reaching Transnistria was a war aim, the stock tanked again. A few days later, staff at the vineyard's luxury hotel say they saw smoke billow from one of the bombings in the territory that set rumors flying about what might come next. The stock slid further.

By Friday's close, Purcari was selling for 9.73 Romanian leu ($2.10) per share on the Bucharest stock exchange, down from 15.85 leu in mid-February, when investors began to price in a Russian invasion of Ukraine.

“A bet on Purcari is a bet on the war,” said Chief Operating Officer Eugen Comendant, as he tasted and rejected an imperfect sample of sparkling wine that last year was named among the world's top 10. Then he ticked through why he believes the fighting will never cross the de facto Transnistria border to touch the business's gleaming array of stainless steel vats and ancient wine cellars.

Staff at the vineyard's hotel have also measured the course of the fighting next door in refugee numbers, having opened its luxury suites and converted tasting and conference rooms to emergency accommodation from the moment the Russian invasion began.

Comendant notes that Moldova has neutrality written into its constitution, meaning there's no risk of it joining the North Atlantic Treaty Organization, a factor Russia's cited for its dispute with Ukraine, as well as with Georgia, with which it fought a war in 2008.

Similarly, whereas Russia's President Vladimir Putin said he launched his “special military operation” in Ukraine to “de-Nazify” and “demilitarize” the country, neither could apply to Moldova. The country has no ultra-right militias on which to base such a claim, and while “we may make very some good wines, we don't have tanks,” Comendant said.

According to the Military Balance, an annual audit of global militaries by the International Institute for Strategic Studies in London, Moldova has no main battle tanks, no combat aircraft, six helicopters and a land army of just 3,250 troops, the majority of whom are conscripts. It's a force, the IISS notes, that could offer “only token resistance.”

Of course, Moscow might also see that as a reason to topple Moldova's pro-Western government, which in March applied to join the European Union. Yet with Russian tanks in Transnistria, an invasion might not be needed.

Russia still has a strong ally through which to achieve its political goals in the Socialist Party of Moldova. It also exercises economic leverage over Moldova in the form of cheap natural gas and electricity supplies, including from the Cuciurgan power plant in Transnistria, visible from Purcari.

The last reason for Russia to hesitate before attacking Moldova, according to Comendant, is that about a third of the 2.7 million population have Romanian passports, a fact that could draw Romania — and potentially NATO — into the conflict.

Nevertheless, on Monday speculation continued to swirl around Russia potentially extending the war to Transnistria, as images circulated on Twitter of a local newspaper special edition asking Putin to intervene in the territory.

“Of course it's very difficult now,” Comendant said, who bought 40,000 shares in Purcari in March, according to a filing with the Bucharest Stock Exchange. “But I think after the war, having had to fight for their freedom, the brands of these countries will emerge very much stronger.”

That could benefit Purcari, which has been expanding. It sold 5 million bottles of red, white, rose and sparkling wine in 2021, up from 3 million the year before, 80% of it for export. Revenue was up 75% since the 2018 initial public offering, according to a report for the company's April 28 annual general meeting.

In 2020, the vineyard, founded by a Frenchman in 1827, won a best in show award at Decanter, the global wine industry's biggest annual competition. Last year the company collected more than 300 awards from wine competitions around the world.

With 140,000 hectares of vineyard under cultivation in Moldova in 2020, just shy of Australia's total crop area of 146,000 hectares, according to the International Organization of Vine and Wine, Purcari says it has plans for acquisitions in Moldova and beyond, though the war has put them on hold.

There's also the immediate focus on housing refugees.

At the beginning it was bedlam, says Corina Timofti, who oversees the hotel's tourism business. Company directors, including major investor Horizon Capital in Kyiv, took the decision to get involved in an early morning phone call on Feb. 24. Thousands were housed in or near the hotel since, and nine have been employed.

Ukrainians were calling in tears in the middle of the night in search of a place to stay, Timofti said. Another influx came during the recent Transnistria bombings.

From the first morning until about a week ago, the winery manned a tent at the road side around the clock, offering passing refugees free sandwiches and blankets, donated Sim cards and drinks, as well as personal hygiene products and diapers.

But the situation has calmed as the government and international aid organizations have swung into action. On Monday, just two families were spending the night and the border crossing was all but deserted.

Dmitry Yaitskyi, who ran three restaurants and four bars at a beach-side hotel in Odesa, arrived in early March. With the beach mined and the hotel closed, he and his wife drove out of the city, moving just 10 km in the first 24 hours, he says. He's now does the same job at Purcari. His wife, a chef, works in the kitchen.

“All our guys from Ukraine found jobs,” says Yaitskyi, who was born in Georgia. The sheer numbers of Moldovans who have emigrated to work in the EU in recent years left a skilled labor shortage that Ukrainians are now filling.

But he said it was the stance of the winery — it already produced a “Freedom Blend” of Ukrainian, Moldovan and Georgian grape varieties since the earlier Russian invasion of Ukraine in 2014 — that led him to take its offer over others.

On Saturday, Viktoria Kula, a pastry chef Yaitskyi knew in Odesa, joined Purcari's kitchen. The ethnic Bulgarian had decided to leave Odesa after Russian missiles struck the bridge to Ukraine's southernmost region, where she grew up and her family still lives.

“I wanted not to hear the sirens and explosions anymore, and to protect my son,” Kula said. Her 10-year-old boy became extremely anxious as they were forced to sleep in the corridor of their Odesa flat, she said.

Arriving at the winery “was like paradise, we slept the whole night for the first time,” according to Kula, 35. Asked if she wasn't worried to still be so close to Odesa and Transnistria, having turned down another job offer in the Moldovan capital two hours north, she shrugged.

“If they come here,” Kula said, “they will go to Chisinau too.”