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Group Wins $239m Investment in Farmland

Fri, 08 Jun 2012 15:17:52 GMT

Brazilian farming operator SLC Agricola follows in the footsteps of DGC Asset Management, having received an investment of $239 million from institutional fund manager Valiance Asset Management for a new greenfield development farmland investment involving the conversion of scrubland into productive agricultural assets. Shares in the company rose by 6 per cent as markets heard the news.

Farmland Investment in Brazil

The group aims to increase the volume of agricultural land under management to 700,000 hectares by 2021 by acquiring and developing land in Brazil and overseas. Valiance, the Investor, will become a shareholder in SLC Landco; the investment vehicle set up to make new acquisitions and undertake the development work.

Initially, the company will acquire over 60,000 hectares of agricultural land across three separate properties, and Valiance will contribute just under $30 million followed by three further investments totalling $238.6 million by September 2014. This will leave Valiance with just less than 50 per cent ownership of Landco and SLC controlling the majority shareholding in order to comply with foreign ownership laws in Brazil which state that a Brazilian entity must take majority ownership for large farmland acquisitions.

DGC Asset Management, headquartered in Northampton, UK has been directly involved in greenfield farmland investments in Latin America since 2007. David Garner, Managing Partner at the firm said, “greenfield developments offer Investors the most potential in terms of return as you can take an asset worth less than $500 per hectare, spend $1,000 clearing it and adding infrastructure such as proper access and repairing the soli quality, and you end up with a productive asset worth up to 3 or 4 times your investment that also yields an income every year from rental or production. Although these kinds of projects carry more inherent risk than simply buying already productive assets and leasing them to a tenant farmer, so it’s not a strategy for everyone.”

In Brazil, SLC was quoted as saying that the capital invested by Valiance Asset Management “will be used in the acquisition and development of new agricultural areas.”

Jan Pensaert, the founder of Valiance Asset Management which managed capital for banks, pension funds and family offices from its own offices in London and Guernsey, has been interested in owning productive land in Brazil, stating that he has a particular interest in the North East where SLC has previously acquired three faring properties.

"That's the region with the most infrastructures upside. The climate is good, the topography is good. You're next to the rain forest so there is a lot of cloud formation, precipitation," Mr Pensaert told a conference in Geneva, adding that the agriculture sector "very low correlation with the S&P 500, so it's a very good diversifier".

Landco, which will be run by Gustavo Lunardi, a land expert at SLC, will acquire and clear the land ready for production, then lease it to SLC which will farm a variety of crops such as corn, cotton and soybeans. The executive board of Landco will also consist of another 5 to 7 members including 3 independent Directors and will also report to an investment committee.

Latin America offers the world’s biggest underdeveloped land bank outside of Africa, yet carries less risk, although the risk for foreign owners of productive agricultural assets can be quite high in some states in the region. This week, Macquarie called Brazil "the embodiment of the next revolution" in agriculture, as it pointed out that the country had a significant amount of unused land that could be converted to productive agriculture, although a lack of infrastructure and rising costs of transporting products across the vast country present some barriers for growth in the sector.

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