February 27, 2012
Pastoral Dairy Investments (PDI) plans to raise more than US$75 million to buy farms in Canterbury and Southland.
PDI is seeking to raise at least US$75 million to invest in New Zealand dairy farms both through a US$25 million initial public share offering and by targeting "co-investors" to invest another US$50 million in the farms.
PDI says it will give "normal" Kiwis the opportunity to invest in a fund used to make debt-free acquisitions of dairy farms, targeting six to nine larger properties both through real estate firms and directly. This was out of a total of 11,500 farms in the sector.
Until April 20 it is offering 25 million shares plus oversubscriptions, at an issue price of US$1.00 per share, partly paid to US$0.30 a share with a minimum commitment of US$20,000.
Lincoln University agribusiness professor Keith Woodford said the US$20,000 threshold would let a wider group of investors get into the sector that had to a degree been unreachable given that a minimum investment in the order of US$250,000 was often needed by an investor to gain a stake hold in the industry.
"This is new in that it opens up dairying to the smaller investor . . . there's no equivalent entity at the moment that people can invest into," Woodford said. Dairy land prices looked as though they were starting to increase again, he said.
However, dairy prices are down 15% in the past year, according to a commodities report by ASB Institutional this month.
PDI directors said they would apply for a listing on the unlisted exchange - seen as an interim trading platform. If shareholders later voted to seek a listing on NZX, then it was binding on the PDI directors to seek that listing.
PDI executive director Neil Craig said the company envisaged a full listing in 18-24 months. It had already been in talks with potential investors who were showing strong interest "but no-one's committed at this point".
With a focus on large dairy farms PDI believed it could deliver quarterly dividends and a gross yield at current milk prices of 5-6% once the funds were fully invested. This return came after fees and before tax.
It will have "a very low fee structure . . . and once we're fully invested we'll have a liquidity structure [via a listing] that will we believe allow trading of the share at around net asset backing."
The company, which will get returns from monthly milk payments from Fonterra or other dairy companies, will be chaired by Malcolm Bailey, a director of Fonterra Co- operative and the owner of 11 farms in Manawatu and Hawke's Bay.
Independent director John McDonald said that in the company's constitution it was stated only 24.9% of the company could be potentially held overseas to meet Overseas Investment Office regulations.
PDI will be managed by partnership MyFarm Asset Management LP, led by Andrew Watters and Grant Rowan, directors of dairy farm management group MyFarm that has a management contract on the farms.
Watters said it was PDI's objective to purchase a portfolio of farms that would perform in the top quartile from an investment and returns perspective.
"But overall our expected returns for this investment are in the (pre tax) 10% per annum range, perhaps (split) 60/40 cash and capital."
Management fees for MyFarm's involvement were set at 0.85% of paid capital, reducing to 0.5% on amounts above the US$75 million threshold. These were similar fees to those charged to MyFarm syndicate investors.
Andrew Watters, executive director of farm management group MyFarm Asset Management LP, says PDI's objective was to purchase a portfolio of farms that would perform in the top quartile from an investment and returns perspective.
