Aquila in NZ dairy joint venture – update

Alternatives asset manager Aquila Capital and MyFarm, the New Zealand farm investment company, have launched a joint venture to channel debt capital into the New Zealand dairy market.

NZ Dairy Farming Trusts is seeking to raise NZ$100 ($79 million; €62 million) million from international and domestic family offices and institutional investors to issue loans to dairy farmers. These loans will be used for a variety of expenses such as property acquisitions, expansion, productivity improvements and environmental compliance expenses.

This 10-year trust is the first of many that the Aquila Capital Farms (ACF) and MyFarm initiative will raise, according to Andrew Watters, the JV’s managing director.

“We will have a series of trusts perhaps designed around bespoke needs such as for some investors that want bigger parcel sizes,” he told Agri Investor.

The loans will be structured as second mortgages behind a conventional first mortgage and are being developed in partnership with ANZ, one of Australasia’s largest retail and investment banks; ANZ will provide credit approvals and help to manage the assets if things “go off course”, according to Watters.

The loans will charge quarterly interest rates linked to the milk price. These will average at 6.5 percent a year. And farmers will also pay a land price-linked interest rate at the end of the 10-year term which will average 5.9 percent a year, according to Watters.

The annual interest rate on the loan will vary in line with changes to the milk price, with a minimum rate of 2.5% per annum and a maximum of 10%. At the current forecast milk price for this season of $5.30/kg milk solids, the interest rate calculates at 2.6%.

NZ Dairy Farming Trusts has already done some pre-marketing across Asia travelling to Hong Kong, Singapore and Japan, according to Watters. The JV is also likely to visit the US later this year (including a trip to Chicago to attend Agri Investor’s Forum), he added.

The JV comes at an opportune moment for New Zealand’s dairy market that needs investment of up to NZ$210 billion to support the production growth needed to benefit from increasing agricultural trade in the region, according to ANZ.

“The ACF NZ Dairy Farming Trust initiative aims to help bridge the gap between the demand for foreign investment funding and the ability for foreign investors to provide that funding, by lending money to New Zealand dairy farmers on interest terms that provide similar returns to an equity investment. In concept, the Trust will provide farmers with an alternative to a conventional equity partnership,” reads a marketing document.

The JV provides an alternative way to get exposure to New Zealand’s dairy market. Other investment offerings pursue a private equity model such as Southern Pastures and Craigmore Farming.

NZ Dairy Farming Trusts will charge a 0.25 percent annual management fee and a 10% performance fee based on the quarterly interest rate yields and the land price interest. The total fee structure is likely to amount to around 0.7 percent – 0.8 percent in total including costs, according to Watters.