Criterion exits 8,500 ha Ugandan timber asset

Criterion Africa Partners’ portfolio company Global Woods has sold its 8,500 hectare pine and eucalyptus timber asset in Uganda’s Kikonda Forest Reserve to Nile Fibreboard. Financial details were undisclosed.

Criterion’s 2010-vintage Africa Forestry Fund I became involved in Global Woods in 2015 when the firm extended a loan to the company, the PE firm’s managing director Jim Heyes confirmed, and took over the equity this year.

Heyes declined to disclose the size of the initial loan granted by Criterion, its structure or the reasons behind its takeover of the company. He did add, however, that although the sale price remains confidential, Criterion “did pretty well” on the price struck with Nile Fibreboard, a family-owned Ugandan wood manufacturing business.

Since becoming involved with Global Woods in 2015, Criterion has supported the growth of its planted area from 5,500 ha to 8,500 ha, introduced increased species mix to add more Eucalyptus trees that are attractive to the African utility pole market, and offered direct technical assistance on silviculture and worker safety.

Criterion has also started the work of helping steer Global Woods from a tree-planting business to a commercial operation, Heyes said.

“That’s really the path the company is on and when you start having clear fell volumes from these forests, it’s really a different skill set to figure out how to optimize the harvest, and what the manufacturing and marketing strategy will be,” Heyes said.

“We took the first steps down that road with the company but ultimately the new buyer is really much more equipped to take that to the next level since they already have their own manufacturing facilities and that’s really their core business.”

The firm also pursued other commercialization avenues including tapping the resin from pine trees to be used as adhesives for footwear, as well as “biomass energy to try to replace diesel generation,” Heyes said.

“The important point here is, especially during the early stages of development, identifying other lines of business and sources of revenue that kick in well before the plantation matures,” said George McPherson, another MD at Criterion.

“That’s what we call putting value back on the stump, which is an important part of any plantation development. If you’re just going to wait around for the trees to grow and wait to get that first dollar of revenue once they’re grown, it’s going to be challenging business.”

The $160 million Africa Forestry Fund is backed by eight development finance institutions including IFC, CDC Group and COFIDES, while the Grantham Foundation for the Protection of the Environment is a shareholder in Criterion and also backed the fund.

The fund has had some challenges due to several of its assets being headquartered in South Africa, which has suffered from significant currency devaluations.

“[Uganda] is really more of dollar-denominated market in a sense, which obviously helped a lot and you know it provided almost a hedge against the South African exposure in the fund,” explained Heyes.

“That’s been quite positive and it’s one of the arguments for diversifying across several different countries. I’d say typically our East African businesses are more dollar-linked and obviously a lot the products from Global Woods sold in Kenya and Uganda show shilling-based [returns], but there’s a fairly strong dollar link with the forest tree markets and you’ve got import parity at some level.”