In mid-October, the Carlyle Group extended a €140 million loan to Unifrutti, a European-headquartered fruit company with production assets concentrated in Chile. The loan was a rather opportunistic play for the aptly named Carlyle Credit Opportunity Fund, with managing director Taj Sidhu telling Agri Investor it fit well with the vehicle’s focus on lending largely to family-owned, non-sponsored borrowers.
In a way, the transaction highlighted how the recent exit of European banks from Latin American markets had created opportunities for credit investors. But as Roberto Viton – founder and managing director at food- and agri-focused advisory firm Valoral Partners – told Agri Investor, the deal also came amid growing interest in Latin American agriculture from equity and strategic investors.
Viton said ownership restrictions and low earnings have, in recent years, encouraged most large institutional investors active in Latin American agri to shift focus from row to permanent crops in countries such as Chile and, to a lesser extent, Peru. He added that endowments, insurance companies, sovereign wealth funds and US pensions had all demonstrated growing interest in Latin American agriculture generally, and Chile specifically.
“It’s quite likely that you will see some of the big names investing in Chile in the next 12-18 months,” he said.
Indeed, Chile is already one of just seven countries where Nuveen owns farmland. Hancock’s acquisition of 12,250 hectares of forestry assets in the country from Mitsubishi last year was among the transactions Viton highlighted as indications of a pick-up in market activity.
A source familiar with the market also pointed to an investment this year by Canada’s PSP Investments into a group of Chilean agri companies combined into an entity called San Jose Farms.
PSP declined to comment. However, in its 2019 annual report it stated that agriculture had been the predominant focus of the $2.1 billion of investment during the previous year, which included significant investment into joint ventures with new partners. Those acquisitions, according to the report, left PSP with approximately 5,000 hectares of permanent crop operations in Brazil and Chile, with key crops including coffee, blueberries and avocados.
As Sidhu had suggested was the case in Carlyle’s loan to Unifrutti, Viton said challenges and opportunities from supplying growing Asian markets with fresh produce had helped motivate expansion plans even by highly indebted Latin American companies.
For institutional investors, he said, regional companies’ need for fresh capital to support those plans – combined with the exposure to long-term consumption trends in Asia – have led to increased interest in Latin American agri, especially among the largest institutions.
Which is why the cancellation of the Asia Pacific Economic Cooperation forum – a meeting that was widely expected to see the closing of a ‘Phase-1’ trade deal, that would have been likely to have included long-promised Chinese purchases of US goods – should worry investors.
Due to be held in Chile, the event was called off after violent protests rocked the country. These protests, it should be noted, were partly linked to public expectations set during a decade-long commodities boom.
If left unaddressed, the tensions that led to the cancellation of the APEC meeting could imperil the actual trade that the forum was convened to discuss – trade that investors seem increasingly interested in using their capital to foster. As they train their sights on Chile and the rest of Latin America, investors would do well to keep those tensions in mind.
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