Phoenix Africa Development Company, an agribusiness holding company, has raised $3-4 million of a $22 million target for its Sierra Leone rice farming project, Lion Mountains Agrico, and hopes to start investing capital before the end of the year.
The company has a firm commitment of $1 million from a West African merchant bank and a soft commitment from a US foundation for between $2 million and $3 million.
Lion Mountains is structured as a limited company and will issue 12.5 percent loan notes maturing between 2019 and 2020, representing 99.9 percent of any investment. Investors will purchase two different tiers of shares with the remainder of their commitment. These will be held for longer and pay dividends after the loan notes have been redeemed, based on cash flow from the operations.
“We expect investors to have the opportunity to exit fully after 10 years, although it could be earlier by agreement,” said Paddy Docherty, chairman of Phoenix Africa. “Our exit expectation is a trade sale, for example to a major grain or commodities trader, or an agricultural fund; we will not be short of exit possibilities, as once we are up and running we will easily be the biggest producer of food in the country, and there is plenty of private equity and other fund money out there for established businesses in this sector.”
Lion Mountains will lease unworked land from the local community in Lugbu and operate it with its own management. The farms will primarily grow rice although there will be some rotation with soyabean to maintain the soil fertility.
The company’s forecast internal rate of return is 31.58 percent.
While Phoenix Africa is not an impact investment firm, it does have an implicit development agenda, although not at the expense of commercial returns, said Docherty. “Phoenix Africa is committed to an enterprise development approach,” reads the website. “This is defined, at its simplest, as making development pay.”
Phoenix Africa plans to launch a series of projects across other post-conflict countries in Africa such as Nigeria, South Sudan and Cote d’Ivoire but has started with Sierra Leone.
“Sierra Leone fits the Phoenix Africa model perfectly, as despite the lingering association with the civil war it is extremely stable, peaceful and a great place to do business,” Docherty told Agri Investor. “The low cost base and enormous import substitution opportunity offer terrific growth potential in the agriculture sector, and we are very excited to be there.”