SCS Farmland: an invitation to invest

Transcription

1 SCS Farmland: an invitation to invest The FWE Group invites international Investors to purchase farmland in Argentina, with the land being re-purchased after 5 years or 10 years, as the Investor chooses. The FWE Group is a group of companies based in Argentina and UK, with very large land holdings in northern Argentina; it is also affiliated to a large Argentinean farm operator. It is raising funds to clear new land and bring it under cultivation increasing food production and providing employment in Argentina s poorest region. The Investor purchases an Area of Land at a one third discount of its value. The Area is then cleared, and the Investor receives an Annual Payment for the cultivation of the Area. At the end of the investment the Area is re-purchased from the Investor. Those investing for 10 years receive an average Annual Payment of 12%; and at the end they receive a Re-purchase Price of their original capital plus 40%. So the average rate of return is 16%. Those investing for 5 years receive an average Annual Payment of just over 10%; and at the end the Re-purchase Price is their original capital plus 15%. So the average rate of return is just over 13%. The minimum investment is $16,000 or 12,000. Investors may make their investment through a UK SIPP (Self Invested Personal Pension). The investment is structured and administered by Powerscourt Services Ltd, based in Cambridge, UK. In case of Investors not receiving the Annual Payment or the Re-purchase price, Powerscourt has powers to sell land on the open market. And for every three hectares bought by Investors, Powerscourt has access to one hectare to make up any shortfall. Investors receive Due Diligence documents, verifying title to the land and Powerscourt s powers to act in the sale of land on Investors behalf.

2 Investing in farmland Rising food prices According to a recent report by the OECD and UN Food and Agriculture Organization (reported in The Daily Telegraph 28/10/10) the prices of wheat and other arable crops will rise by between 15% and 40% in real terms by the end of this decade. Assuming a rate of inflation of 2%, this equates approximately to a rise in money terms of between 35% and 60%. The reasons for this expected rise are well-known. First, the world population will continue to increase; and every new mouth needs to be fed. Second, economic growth in Asia is causing rising demand for meat; and every kilo of meat requires several kilos of grain as livestock feed. Third, while agricultural productivity will rise, it cannot keep pace with rising demand. Rising land prices The price of agricultural land is directly connected with the price of the crops grown on it, combined with expectations of further rises. And while crop prices are prone to short-run fluctuations, caused by variable harvests and speculation, land prices tend to rise in a more stable fashion. Moreover, the amount of agricultural land in the world is relatively fixed. So farmland represents an excellent investment. 2

3 Northern Argentina Land in northern Argentina While agriculture in the provinces around Buenos Aires is well-developed, in the more remote northern regions much excellent land remains unused. The climate there is not sufficiently wet to sustain rain forest, but is ideal for arable cultivation. Yet lack of funds hinders the clearance of unproductive vegetation. Indeed, lack of funds has become chronic in Argentina, caused by a combination of high inflation and low interest rates, which starves the banks of capital. Yet the potential returns are huge. It requires approximately $1,000 per hectare to clear land for cultivation. Once under cultivation the value of the annual harvests, less the costs of production, are $1,000 or more representing a return of 100% on investment. FWE Food, Water and Energy SA (FWE) is an Argentinean public company that owns approximately 60,000 hectares in the northern province of Santiago del Estero. Since 2007 SCS FWE has raised funds from private Investors to clear and cultivate land in the Donadeu area of the province, originally under the brand-name Greengold, and more recently as SCS ( SCS stands for soya, corn and sunflowers which are the main crops). And Investors are sharing the very high returns. Now it is turning to the Weisburd area of the province, where both the soil and climate are even more favourable to arable agriculture. 10 and 5 years Investors buy an Area of Land and hold it for a fixed Term, receiving an Annual Payment. At the end of the Term SCS buys back the Area. Investors can choose to invest for 10 years or 5 years. 3

4 10-year investment Annual Payment Investors in SCS for the 10-year Term receive the following Annual Payments for their Area as a percentage of their Contribution. Years 1 & 2: 10% Years 3 & 4: 11% Years 5 & 6: 12% Years 7 & 8: 13% Years 9 & 10: 14% Capital appreciation At the end of the Term FWE buys back the Area at a Re-purchase Price of 140% of the original price, giving capital appreciation of 40% (i.e. the equivalent of 4% per year). Rate of return On a simple calculation of the average rate of return (ARR), which takes no account of the timing of returns, the ARR is 16% per year. Investment professionals use the internal rate of return (IRR), which takes into account the timing of returns. The IRR for the 10-year Term is just under 14%. Total return Another way of judging the investment is to look at the total return over the investment s lifetime. In the course of 10 years the total return on every $1,000 invested is $1,600, plus the original capital. In other words $1,000 turns into $2, year investment Annual Payment Investors in SCS for the 5-year Term receive the following Annual Payments for their Area as a percentage of their Contribution. Years 1 & 2: 9% Year 3: 10% Year 4: 11% Year 5: 12% Capital appreciation At the end of the Term FWE buys back the Area at a Re-purchase Price of 115% of the original price, giving capital appreciation of 15% (i.e. the equivalent of 3% per year). Rate of return The ARR is 13.2%. The IRR is 12.5%. Total returns The Total Return for every $1,000 invested is $660 plus the original capital. So $1,000 turns into $1,660. Net of taxes For both the 10-year and the 5-year investment the Annual Payment and the Re-purchase Price are paid net of all local Argentinean taxes. 4

5 Structure Powerscourt Powerscourt Services Ltd, a consultancy based in Cambridge, UK, created the original legal and financial structure for Greengold, the forerunner of SCS, and the structure for SCS. It also administers the investment: it holds the Investors Contributions in an Escrow Account in UK until the due diligence is complete; and it is the means through which Investors receive their Annual Payment and Repurchase Price. Beneficial ownership The Investor acquires beneficial ownership of a specific Area of Land, depending on the size of the Contribution. Title remains in the hands of a Local Company, as required by law. Yet through the law of trust (fideicomiso in Argentina) Investors enjoy full ownership rights, enforceable in law. At the end of the investment, it is the Local Company that re-purchases beneficial ownership from the Investor. Clearance and cultivation For each Investor the Local Company enters a contract with SAAM, which is an affiliate of FWE, to clear and cultivate his/her Area of Land. SAAM is a major Argentinean farm operator. It has successfully cleared approximately 8,000 hectares under the existing SCS and Greengold schemes, and the land is now producing abundant crops. Paying the returns Since it costs approximately $1,000 to clear each hectare, the Local Company can use funds raised from the sale of land to pay SAAM to clear not only the Investor s Area, but considerably more land as well; so the total value of the harvests is magnified. This enables the Local Company to pay the high Annual Payment and the Re-purchase Price. Private transfer Investors can sell their Area to a third party at any time, or to bequeath it or give it away. Currency Investors may make their Contribution in US Dollars, GB Pounds or Euros, as they choose. And the Annual Payments and the Re-purchase Price will be calculated and paid in that currency. So the Investors carry no exchange rate risk. 5

6 Security Powerscourt holds shares Powerscourt holds the shares in the Local Company as security for the Investor. If the Local Company fails fully to pay the returns, Powerscourt can cause the sale on the open market of land held by the Local Company to make up any shortfall. Surplus land As additional security the Local Company will only sell the Investors a maximum of 75% of its land. This means that 25% comprises surplus land. In the event of the Local Company failing to pay the returns, Powerscourt can sell the surplus land. Discounted price A third form of security is that the Local Company sells the land to Investors at a discount of approximately one-third of its value. This means that, in the event of major failure to pay returns, there is ample value in the Local Company to buy out the Investors entirely, giving them an immediate healthy profit. Due diligence While the Investor s Contribution is held in Escrow, prior to it being remitted to the Local Company, the Investor will receive documents confirming the Local Company s title to the Land, and also Powerscourt s ownership of its shares. External risks There is inevitably a degree of political risk. However Argentina s legal framework, including its property rights has proved remarkably strong over the decades. With agriculture there is always the risk of major climatic disaster with unpredictable consequences. 6

7 Making the investment Size of investment The minimum investment is $16,000 or 12,000. There is no maximum. Large Investors For large Investors in the long-term investment (Agroaustralis) the annual returns are enhanced as follows. Contribution of $150,000 up to $299,000: higher by 1% Contribution of $300,000 up to $449,000: higher by 2% Contribution of $450,000 and above: higher by 3% Property Purchase Contract The process of investing is very simple. Investors or their advisors complete a very simple Property Purchase Contract, and then remit the Contribution to the Escrow Account managed by Powerscourt and also verify identity in the normal manner. There is then nothing further to do. SIPPs This investment is SIPP-compliant, with many SIPP Providers already handling Greengold and SCS. Those making their Contribution through a SIPP are likely to benefit from the help of a qualified advisor such as an IFA. This is especially the case where the funds are being transferred from under-performing personal pensions held elsewhere. Visiting the land Investors, especially those considering a large Contribution, may wish to visit the land, verifying for themselves its quality which is their ultimate security. FWE can arrange this, although the Investors will need to bear the costs. 7

8 Food Water & Energy SA San Martin 551 2do Piso, oficina 60 CP 1004 Ciudad de Buenos Aires Argentina Disclaimer While all reasonable efforts have been made to ensure that the contents of this document are accurate, it does not form part of any contract, and the author and publisher cannot be held liable for its contents.