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The investment opportunity
of food security
OLD MUTUAL EAST
AFRICAN AGRI-FUND I
HOW WILL THE FUND OPERATE
2
PRODUCT DESCRIPTION PROS CONS
Competitors
Buy and operate Agricultural Land and Infrastructure
Investing in agricultural land, infrastructure, farming operations and logistical chain.
• Higher expected risk/return profile• Direct exposure to crop prices
& harvest performance
•More Complex deal structure• Higher maintenance and
management attention required Operational risk e.g. weather, diseases
Old Mutual East Africa
Fund 1
Buy and lease out Agricultural Land and Infrastructure
Investing in the agricultural land & infrastructure and lease to an operator
• Simple deal structure• Lease income escalated by
CPI every year• No direct exposure to crop
prices & harvest performance• Risks mitigated due to
commercial operators diverse operations
• Lower income from land & infrastructure only as opposed to land and farming operations
$Old Mutual
Agri Fund
ESG & Financial
DD in
conjunction
with the
operator
Fund
approaches/is
approached by a
commercial
farming operator
Operator leases
farm, pays coupon
to fund (ESG
monitoring!)
Improve & expand
farm, invest in
agribusiness & ag-tech
(Value Uplift)
Exit
investment
Fund
Purchases
the farm
THE FUND’S PHILOSOPHY IS TO ADDRESS THE GLOBAL CHALLENGE OF FOOD SECURITY
INVESTMENT FOCUS
◼ Sustainable large-scale commercial farming
◼ Diversified investment portfolio– Crop (Permanent crops
40-60%, Dairy 20-30%, Row crops 20-30%)
– Country (see on the right)– Farm operators (>10
million US turnover and strong BS with long-term track record)
3
Different characteristics of the fund
ZAMBIA
TANZANIA
KENYA
RWANDA
UGANDA
IMPACT
◼ Impact on– Food security– Education– Employment
VALUE CREATION
◼ Optimize integration farming/processing/logistics
◼ Vertically integrated along the value chain (from production to final off-taker)
POLITICAL RISK MITIGATION
◼ Multilateral Investment Guarantee Agency (MIGA)
◼ Political risk insurance
◼ World bank insurance available– Expropriation – Currency inconvertibility – Civil war and disturbance– Unfair government action
◼ Pricing: 45 – 125 bpsCover of investment based on market value
GEOGRAPHICAL FOCUS:
Core, peripheral, satellite and current UFF regions
Satellite
Peripheral
Core country
Others highlighted:Old Mutual active
◼ Bad weather conditions last year result in food import
spending jumped over the first 4 months this year to KSh68.63 billion.*
– Central Bank of Kenya revealeda 30% y-o-y growth
– Represents 11.64% of the total import expenditures
– Purchases of corn, milk, rice,wheat and sugar
◼ Agriculture accounts for 32% of
Kenya’s GDP and generating 45% of export earnings. Moreover it provides over 70% of informal employment in rural areas**.
IMPORT BILLS + UNDER CULTIVATED LAND MAKE KENYA AN ATTRACTIVE INVESTMENT
4
Why invest in Kenya?
*Source: Ecofin Agency **National Agricultural Export Development Board (NAEB) | http://www.fao.org/nr/water/aquastat/countries_regions/KEN/index.stm
Smallholders
produce 75% of output
On average farm sizes of
+/- 0.5 – 0.75 acres
Large scale farms
produce 25% of output
On average farm sizes of
+/- 124 acres
143.3m
acres
COUNTRY
SIZE
66.7m ac
CULTIVABLE
76.6m acresNON-CULTIVABLE
51.9m acresOPPORTUNITY
FOR UFF
ONLY 14.8 ac
CULTIVATEDof which:
75%25%
66.7m acresCULTIVATABLE
Direct return
− CPI-linked lease fee: the lease is afixed percentage of the purchaseprice of the land, escalating annuallyat CPI.
− Farm expansion gives an increasedlease yield once the newdevelopments reach production.
Indirect return
− Potential capital appreciation overthe life of the Fund on the underlyinginvestment properties.
− The capital value of farm expansionsare enhanced on revaluation andexit.
Social return
− Due to enhanced worker healthcare,housing and sanitation, job creationand skills transfer ensure thatfarmland quality is maintained andcontribute to farm sustainability andcommunity empowerment. Thispotentially translates into a higherfarm value in due course.
10,6%
11,1%
10,6%
11,3%
19,7%
18,9%
7,8
%
8,7
%
8,1
%
11,1%
13,1%
16,1%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
Since
Inception
Since
I +1yr
Since
I +2yr
Since
I +3yr
Since
I +4yr
Since
I +5yr
Since
I +6yr
2
HISTORICAL FUND PERFORMANCE SHOW INCREASING RETURNS UP TO 20%
Proposition historical performance
Futuregrowth Agri-Fund I Old Mutual Swaziland Agri-Fund Typical Agri Return-curve
◼ Old Mutual’ s historical fund performance has an progressive return development with increasing returns up to 20%
◼ Agricultural assets tend to follow a typical progressive return-curve due to lease payments starting from investment and farm expansions will appreciate over time
HISTORICAL FUND PERFORMANCE AND TYPICAL AGRI RETURN-CURVE*
*The FA-F 1 has a lifetime of over 7 years, the OMSA-F’s lifetime is only 5 year. The returns (IRR) presented are returns up to current date (Q1 2018); Return since inception is therefore the return of the full lifetime of the fund, whilethe return on ‘I + 1yr’ is the return from 1 year after fund inception up to current date. For FA-F 1 the return over the last year (‘I + 6yr’) is 18,9%, for OMSA-F this is 16,1%; both over the period Q1 2017 - Q1 2018.
EXIT STRATEGY
Exit is built into the investment model upon acquisition
6
Operator:▪ All operators normally demand a right-to-match/buy-
back at start of investment due to strategic nature of fund’s farm investment
Roll-over into succession fund:▪ As farmland investment is an inflation hedge with a
gradual capital growth and lease escalation it’s a compelling long-term investment many pension funds like to retain in portfolio
Open market:▪ Local farmland market is reasonably liquid with a
substantial new flow of international investors
COMMENTS ON EXITS FOR OLD MUTUAL KENYA AND RELATED PARTIES
▪ No exit (multiples) track record is currently available; as first fund started in 2010 and minimum investment term of 10 years is foreseen with an average of 10-15 years.
▪ What is noticed is that the 2 oldest funds within the Old Mutual stable are following a clear progressivereturn track as prognosed. The return consists of:
– A clear direct component (yearly land lease fee) and
– An indirect component (long term value appreciation);
This results in a stable return in the beginning years of the fund and progressive increasing returns in the long term as the value appreciation become visible.
▪ For the Old Mutual Agri-fund 1 the IRR over the last 2 years was ~20% (direct + indirect), which gives confidence that the current strategy will result in good exit returns.
1
Old Mutual Investment Group adheres
to the Chartered Financial Analyst
(CFA) code of ethics.
and observe the guidelines of relevant
authorities within its local jurisdiction,
such as the:
▪ Retirement Benefits Authority (RBA)
▪ Capital Markets Authority (CMA)
▪ Kenya Revenue Authority (KRA)
Auditor:
International recognized ‘big four’ auditor to be approved by Old Mutual Limited.
Valuator:
Independent farm valuator to be appointed for annual asset valuations.
FUND STRUCTURE | OLD MUTUAL EAST AFRICAN AGRICULTURAL FUND-1
8
Legal structure and management/investor relationships of the fund
The Fund (Kenyan based):OLD MUTUAL EAST AFRICAN AGRI-FUND 1
aLimited Liability Partnership (LLP)
Investors
Limited Partners (LP)
Fund Manager:
Old Mutual
Investment Group
Kenya
Investment
Manager:
UFF African Agri
InvestmentsFarm
investment
Farm
investment
Farm
investment
MANDATE TERMS | OLD MUTUAL EAST AFRICAN AGRI-FUND 1
▪ Committed Capital : KSh 10 billion (~$100m)
▪ Closed-ended, Limited Liability Partnership
▪ Approximately 5-15 farming entities
▪ 1st Close: Q4 2019
▪ Term of mandate : 14 + 1 + 1 years
▪ Domicile : Republic of Kenya (tax transparent)
▪ Target IRR: 13% p.a. in KSh (net, unleveraged)
▪ Hurdle Rate IRR: 10% p.a. in KSh (net)
▪ Management fee : 3% excl. VAT
▪ Commitment period : 5 years after 1st Close
▪ Carried interest : 20% over realized hurdle rate
9
Financial investor characteristics of the fund
AIMING TO ACHIEVE OPTIMAL FEE TO VALUE PROPOSITION
Our fee structure is designed to align the interests between the Investment Manager and the Investor
10
Fees are charged on:• Committed capital over investment period• Invested capital thereafter
❖ Clawback (payback) provision: After investment period (5 years)
Fees cover: • Deal sourcing and generation• Operational fund management • Due diligence:
• Legal• Financial• Agricultural tests• Expert consultation
FEE STRUCTURE
Base Fee:
• Base fee covering operational fund management cost:
• On committed capital during first 5 year
• On invested capital thereafter
• Fees that are being paid during commitment period aresubject to a pro-rata claw-back at the end of the 5 yearperiod
Performance Fee: are aligned to benefit the investor andgive incentive to the Fund Manager
• Incentive performance based on returns over hurdle rate
• Payment on portfolio exit realization, payable on wind-upof fund, i.e. not on valuations during investment period
11
Scenario Analysis
Available for split: 5%
Hurdle rate: 10%
Assumed performance: 15%
Investor: 80%
Fund manager:
20%
1% 4%
Excess return
Hurdle rate 10%
Investor returns
FREQUENTLY ASKED QUESTIONS (FAQs)
12
1. Where will the fund invest? No, the fund is domiciled in Kenya and will invest in the East African region i.e. Kenya, Uganda, Rwanda, Tanzania, Zambia, Mozambique.
2. Would an Investor be required to release all the funds at once? No. Once the Investor commits capital, funds will be called up when needed within the first 5 years.
3. Won’t the fund be affected by local land issues? Not necessarily. The fund will be buying large tracts of land that should have clean titles. Further, the fund would use local expertise in authenticating ownership as well as using Multilateral Investment Guarantee Agency (MIGA) insurance to mitigate any risks of expropriation.
4. Are there periodical payments to investors? Distribution payments are paid quarterly. However, different crops have different establishment times. What the fund aims to do is to have a balanced portfolio between quick yielding crops and farms that have a longer lead time. Further, the fund could also invest in the value chain to enhance value of the farm produce e.g. packing plants, manufacturing plants, juicing lines etc.
5. Is there an already existing pipeline of transactions in East Africa? We are currently building a pipeline in East Africa in parallel with fund raising. The size of the pipeline needs to be matched with the expected size of the capital raised.
6. Won’t the projects fail like the Galana Irrigation project? This is unlikely because the farms will be privately held by the fund and operated by experienced operators who have large scale operations and a strong balance sheet. UFF (Investment Manager) is currently managing 5 agri-funds, > 20 farms, ~62,000 acres, in 5 countries.
7. Who are UFF? UFF (United Farmer’s Fund) are 50% owned by Old Mutual investment Group and are the specialist agricultural fund advisor within the Old Mutual Group. UFF has a combined 200+ years of relevant experience.
KEY VALUE PROPOSITION
13
INVESTORS:
➢ Diversification:• AgriFund will enable you to diversify
beyond the common asset classes ofequities and bonds.
➢ Returns:• Old Mutual AgriFund has delivered returns
of upto 20% in the initial Agrifunds• Reduced J-curve from quarterly lease
payments• Further value uplift from exits
➢ Proven track record:• OMIG has outperformed peer
performance over a 1 and 3 year period.• Agrifund has delivered solid returns to
investors• Proven concept over multiple
geographical locations across Africa.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
BENEFITS:
➢ Contribution to food security in the region
➢ Employment benefits to local communities
➢ 6% of lease rentals are spent on ESG
improvements:
• Education
• Healthcare
• Housing
➢ Compliance with UNPRI and IFC standards on
ESG.
CONTACT DETAILS
14
UFF AFRICAN AGRI INVESTMENTS BV | Rotterdam, The Netherlands
For more information
Email: [email protected]
OLD MUTUAL INVESTMENT GROUP| Nairobi, Kenya
For more information
Email: [email protected]
Email: [email protected]
Email: [email protected]
DISCLAIMER
Old Mutual African Agricultural Fund-I PCC (“the Fund”) has been authorised by the Financial Services Commission ofMauritius to operate as a Closed End Fund under section 97 of the Securities Act of 2005.
UFF Management (Mauritius) Limited (“UFF”) has been granted a CIS Manager License under section 98 of theSecurities Act of 2005 and the Financial Services Rules of 2008, by the Financial Services Commission of Mauritius. UFFhas been granted a Category 1 Global Business License under section 72(6) of the Financial Services Act, by theFinancial Services Commission of Mauritius.
This document is expressly not intended for persons, who due to their nationality or place of residence are notpermitted access to such information under applicable law. Neither this document nor copies thereof may be sentto the United States of America, or any of its territories or possessions or areas subject to its jurisdiction, or to or for thebenefit of a U.S. person. Neither this document nor copies thereof may be sent to the United Kingdom, or any of itsterritories or possessions or areas subject to its jurisdiction, or to or for the benefit of a citizen of the United Kingdom.
More detailed information on the risks and investment strategy can be found in the respectable Preliminary PrivatePlacement Memorandum and Prospectus
15
REGULATORY INFORMATION
16
Old Mutual Investment Group (Pty) Ltd
Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405
Telephone number: +27 21 509 5022
Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers(www.fsca.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group (Pty) Ltd is awholly owned subsidiary of Old Mutual Investment Group Holdings (Pty) Ltd and is a member of the Old Mutual Investment Group.
Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial marketsfluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. The investment portfolios may bemarket-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. In respect of pooled, life wrapped products, the underlying assets are owned byOld Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respectof these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlyingassets.
Disclosures: Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive andunpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of the Old Mutual Investment Group areremunerated with salaries and standard incentives. Unless disclosed to the client, no commission or incentives are paid by the Old Mutual Investment Group to any persons other thanits representatives. All inter-group transactions are done on an arms length basis. We outsource investment administration of our local funds to Curo Fund Services (Pty) Ltd, 35% ofwhich is owned by the Old Mutual Investment Group.
Disclaimer: The contents of this document and, to the extent applicable, the comments by presenters do not constitute advice as defined in FAIS. Although due care has been taken incompiling this document, Old Mutual Investment Group does not warrant the accuracy of the information contained herein and therefore does not accept any liability in respect ofany loss you may suffer as a result of your reliance thereon. The processes, policies and business practices described may change from time to time and Old Mutual Investment Groupspecifically excludes any obligation to communicate such changes to the recipient of this document.
This document is not an advertisement and it is not intended for general public distribution. The recipient is advised to assess the information with the assistance of an advisor ifnecessary, with regard to its compatibility with his/her own circumstances in view of any legal, regulatory, tax and other implications. The information herein does not constitute an offerto sell or a solicitation of an offer to buy any securities. This document is expressly not intended for persons who, due to their nationality or place of residence, are not permitted accessto such information under applicable law.
Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to accessinformation please visit www.oldmutualinvest.com.