Belize owner-operator raises preferred equity – exclusive

Caribbean Sustainable Agriculture, (CSA) has completed a $2.5 million first close on its $10 million preferred and common equity offering. Investors included family offices and high net worth individuals.

CSA, a Nevis-based company which plans to own-and-operate up-to 40,000 acres of cropping farmland in Belize, has so far garnered the most support from UK-based investors, but is also targeting individuals and institutions in other regions. The firm expects the offering to close on $10 million by the end of the  month.

CSA plans to raise an additional $50 million across subsequent preferred equity offerings, as well as $60 million of debt. It plans to secure $40 million in long term debt facilities and $20 million in revolving debt facilities for short term working capital.

This leverage will eenable the company to fund its capital investment programme while using operating profits to pay a preferred equity dividend of 8 percent and redeem all preferred equity after four years, according to Geoffrey de Sibert, chairman and chief executive of CSA.

Preferred shares will account for 96 percent of the offering with the remainder held in common equity that will be eligible for dividends from the company’s cash flow after the four-year period, according to de Sibert.

“This structure recognises that in emerging markets investors prefer to mitigate their risk by recovering their initial capital in a shorter time period,” he told Agri Investor. “This makes CSA a bit like an income play with a big kicker at the end.”

Other agri investment market professionals have questioned the ability to produce such a high return in order to meet the preferred equity dividend but de Sibert pointed to the relatively low cost of acquiring and developing farmland in Belize versus the US, as an example; in Belize this would cost around $2,000 an acre compared with something closer to $10,000 in the US, he said.

The country’s appealing climate and ability to export both to the East and the West is an added kicker, said de Sibert. In the East it is a member of the Caribbean Community (Caricom) giving it a particular advantage over other exporting countries like the US and Brazil because it is not subject to a 45 percent import tariff.

And in the West it can get a premium for its corn due to cheap transportation — it just 38 miles from the Guatemala border compared to parts of Brazil that are 600 miles from the nearest Eastern port — giving it an advantage over crop production in the US and elsewhere, according to de Sibert.

“The business has a physical and fiscal moat,” said de Sibert. “It is also an uncommonly safe emerging market to invest in mostly down to its British heritage. This gave it the common rule of law and a stable political system. The currency is also pegged to the US dollar giving it economic stability.”

A public listing is now the most likely end goal and de Sibert and his colleagues believe that the London Stock Exchange would be an attractive destination due to Belize’s connections with the UK — it is an ex-colony of the British Isles after gaining independence in 1981.

“UK investors have been the most interested in the project; they just get it,” said de Sibert. “It’s more of a British tradition to be ready to look overseas for opportunities.”

De Sibert, an ex-investment banker, partnered in 2012 with Michael Mueller, 30-year veteran of large-scale vegetable farming in California’s Salinas Valley, to launch the project after noticing a unique opportunity in Belize.

CSA spent $3 million in seed capital, that it raised in 2012- 2013 from founding sponsor Belize Agricultural Enterprises and friends and family, on acquiring some 5,000 acres of land that it has started to clear. It is now establishing a sustainable irrigation system including building wells and also retention ponds to prevent too much run off into nearby rivers.

The firm harvested the first crop of its first joint venture in the summer of 2013, and the second during the winter months.

Belize Agricultural Enterprises will charge a 2 percent management fee on assets and get a 10 percent share of profits after all preferred equity has been redeemed. De Sibert, Mueller and other seed investors also own a 20 percent stake in the business.