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New fund to assist the growth of New Zealand dairy farming

20 October 2014

New fund to assist the growth of New Zealand dairy farming

Dairy farmers looking to grow their family business will soon have access to a new source of funding, with the launch of an innovative new investment vehicle, the NZ Dairy Farming Trusts.

The Trusts – a joint venture between New Zealand farm investment company MyFarm Limited and German alternative-fund manager Aquila Capital – is seeking to raise up to $100 million from international and domestic wholesale investors. **

The initiative is aimed at providing the New Zealand dairy industry with much needed new capital in order to realise its economic potential. The fund plans to lend money at interest rates tied to milk and land prices, providing dairy farmers with alternative to taking on equity partners.

ACFNZ and MyFarm Ltd, Executive Director, Andrew Watters says during the life cycle of any family farm there are several periods where additional capital may be required unexpectedly.

“These loans could help young sharemilkers with limited levels of capital get into their first farm through to established farmers faced with the once in a life time opportunity to buy their neighbour’s farm, expand production, invest in productivity improvements or measures to improve their environmental compliance.

“We know also that the average age of farmers is now 60 – these loans may be an important tool to assist with family succession,” says Watters.

Loans will be structured as a second mortgage behind a conventional first mortgage from any trading bank. ANZ bank has helped develop the initiative and will be the preferred provider of senior debt and general banking facilities.

The annual interest rate on the loan will vary in line with changes to the milk price, with a floor of 2.5% per annum and a cap at 10%. At the current forecast milk price for this season of $5.30/kg milk solids, the interest rate on the loan would be just 2.6%. At $8.40/kg for last year the interest rate would have been 8.8%.

When the loan is repaid after 10 years, a balloon interest payment is payable at a rate determined by the percentage increase in the REINZ Dairyland price index during the term of the loan.

Watters says it’s well documented that NZ agriculture is falling short of its capital requirements.

“According to the ANZ Greener Pastures report 2012 New Zealand will require between now and 2050; NZ$210 billion in capital investment to enable production growth and NZ$130 billion to support farm turnover.

“From a farmer perspective, a loan from a Trust will provide many of the benefits of taking on an equity partner. Senior debt will be cheaper and financial risk will be reduced because interest rates will breathe with each season’s Milk Price, and there will be a defined exit.

“And while the loan will be a secured obligation, farmers will have a free hand to run their farms as they see fit rather than having to negotiate with an equity partner and the farmer will keep more of the capital gain” Watters says.

New Zealand Trade and Enterprise Capital team general manager, Quentin Quin describes the fund as exactly the type of innovative, strategically beneficial leverage instrument emerging and high growth New Zealand farmers need.

NZTE supported ACF during development of the fund to access markets and offshore regulatory and investor networks.

“It’s an innovative instrument that ensures New Zealand farmers can grow without losing governance control,” says Quin.

Andrew Watters says ACF has already received strong interest in the fund, which is now open for investment.

Dairy Farming Trust Loan features for farmers:
Easier to source equity capital than traditional Equity Partnership capital
No loss of control or governance issues
The Trust does not share in above average performance
The capital gain owed to the trust is offset by tax deductions available during the life of the loan
A farmers share of capital gain is not diluted by as much as an equity product

**This not an offer of securities to the public for the purposes of the Securities Act 1978 (“Securities Act”) or a regulated offer to retail investors for the purposes of the Financial Markets Conduct Act 2013 (“FMCA”). The offer in this Information Memorandum is available only to:
• (i) Persons who are each required to pay a minimum subscription amount of at least $750,000 for units on acceptance of the offer and before the allotment of those securities; and
• (ii) Persons who have each previously paid a minimum subscription amount of at least $750,000 for units of the same class that are held by those persons.

WARNING

The law normally requires people who offer financial products to give information to investors before they invest. This requires those offering financial products to disclose information that is important for investors to make an informed decision. The usual rules do not apply to this offer because there is an exclusion for offers where the amount invested upfront by the investor (plus any other investments the investor has already made in the financial products) is $750,000 or more. As a result of this exclusion, you may not receive a complete and balanced set of information. You will also have fewer legal protections for this investment.

Investments of this kind are not suitable for retail investors. Ask questions, read all documents carefully and seek independent financial advice before committing yourself.

ENDS

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