Australian Rural Capital to focus on unlisted assets after lack of interest in listed vehicle

Australian Rural Capital will focus on unlisted investments on a transaction-by-transaction basis after a lack of interest from investors in a potential listed vehicle, its executive chairman has told Agri Investor.

ARC was the junior partner on an 80-20 split alongside Shanghai Pengxin in a bid for S Kidman & Co that was knocked back by the Foreign Investment Review Board in 2016. Its only current asset is a 9.73 percent stake in ASX-listed Namoi Cotton, a cotton ginning and marketing business operating in New South Wales and Queensland.

Executive chairman James Jackson said in a statement to the ASX that Australian Rural Capital had tried to raise up to A$42 million ($30.4 million; €25.9 million) for a new listed investment vehicle but had failed to reach its minimum threshold of A$30 million. The stake in Namoi Cotton would have been the seed asset for this vehicle, but its ownership will now be retained in full by ARC.

“It became apparent that a number of investors, particularly the larger ones, aren’t interested in listed entities like that,” Jackson told Agri Investor. Those investors were more interested in unlisted assets on a deal-by-deal basis, he said, so ARC has been examining opportunities of that nature, although it has yet to strike its first deal.

“We’ve found it quite difficult in the last 12 to 18 months to find assets where the valuation is right – either the vendor’s expectations or the asset’s value have been too high for us,” he said.

“But it appears there’s continuing interest from investors in unlisted assets, particularly from family offices and smaller institutional investors who don’t have the capacity or in-house expertise [for ag investments].”

Several of ARC’s potential partners are based in Asia, following its work on the Chinese-led bid for S Kidman & Co, and it also has relationships in Australia and New Zealand.

‘Counter-cyclical play’

Jackson said Australian Rural Capital was “pretty bullish” on the cattle sector in particular and the original intention was to use the capital that was to be invested in the bid for S Kidman & Co in an unlisted ‘ARC beef fund’, although this never came to fruition.

ARC would consider assets in the range of around A$30 million to A$300 million, with an ideal value of around A$80 million, Jackson said. “We have enough capital and expertise to secure an asset, then we’d raise capital against it.”

Jackson said that ARC had also taken a “good look” at Mackay Sugar, a Queensland sugar co-operative, for what would be a “circa-A$150 million transaction”.

In his statement to the ASX, Jackson said ARC had done a “significant amount of work” on the “deep value counter-cyclical play”, but it was still seeking a capital partner for the transaction.

The firm has also examined opportunities in the almonds sector, Jackson said, but has yet to find a deal at the right value.

Australian Rural Capital’s stated net tangible assets per share stood at 60 cents as at June 30, 2018, compared with 49 cents per share a year earlier.