As FMO looks to increase its financing for agribusinesses in emerging markets, particularly in Latin America and Africa, we ask the bank’s new director Suzanne Gaboury how FMO is structuring its investments and how it deals with risk in challenging economies.
What are your priorities when investing in agribusinesses in emerging markets?
We operate in the private sector in 85 emerging markets.
Our role is to facilitate local markets and add to the environmental and social responsibility of transactions. In the agribusiness space we look at farm to fork, as we are trying to make a broad push into the space.
We need to do better with what we have. Since I joined last autumn we are being more proactive, and doing more in the countries we have a presence in.
Agribusiness will grow in the FMO organically and because we are making a concerted effort to put additional assets on the books. It is a priority for us, given that one of our mandates is to help ensure food security, and we are going to push that as much as our capital base and risk appetite can take.
What does a breakdown of your agribusiness portfolio look like?
At end of 2015 we had 18 percent of the agri portfolio in equity and 82 percent in loans. FMO has a banking license within the Netherlands, and we operate like other banks from that perspective, providing other services like technical assistance. We provide direct loans, and bring in bank syndicates underneath us for debt lending. On the private equity side, we have a team that looks at agribusiness, and we bring in and initiate funds with an agribusiness angle.
[quote]With our existing portfolio we have had no write-offs so far, because we pick good deals and take a proactive approach[/quote]
Why is the portfolio broken up like this and how might it be changing?
Equity is growing, but not as much as the mezzanine and the loan side. That part will always remain a smaller of the agri space [compared with other sectors we invest in]. Often it has to do with the fact that many clients, unless you are dealing with the large traders, tend to be smaller and medium sized, so they don’t have room for equity investments on their balance sheets. We have a significant portion of our portfolio in family-owned businesses. That is why we most of the debt we provide is highly structured.
How do you manage risk when investing in difficult or challenging environments?
We pick our clients carefully, investing in businesses that can fundamentally withstand numerous shocks and undergo an environmental, health and safety assessment. We also try and ensure that our investment will strengthen them. Sometimes clients require additional investments to withstand shocks over the longer term. With our existing portfolio we have had no write-offs so far, because we pick good deals and take a proactive approach. We have been improving our transaction monitoring and client involvement, making sure we are regularly there in person.
At the same time we take a long-term view, because shocks like the effects of El Niño and La Niña happen, they cannot be fixed overnight. We only have a handful in any kind of [companies needing] restructuring right now.