*corrects investor name and affiliation
Trigon Capital, the soft commodities producer better known for its presence in Eastern Europe and Russia, is turning more of its attention towards Africa after establishing a new venture in Tanzania called the Trigon Rufiji Rice Company.
The firm already has interests in Mozambique, but has now started pre-marketing a $31 million stake sale to fund the development of the Tanzanian rice project; it met investors in Europe two weeks ago and will officially launch fundraising later this year.
The integrated rice farming operation in eastern Tanzania will grow, process and transport rice. It will enlist the local community in outgrower schemes to boost production further and help create a more effective local rice market. It is targeting a return on investment of 50 percent.
“Africa has the highest food prices globally and the cost of transport is also high due to its poor infrastructure,” said Joakim Helenius , chairman of Trigon Capital. “The region is also dependent on food imports from overseas with no sign of domestic production improving, due to very steep urbanisation in parts such as Tanzania. Our project should put cash into the rural economy and lessen its dependence on imports.”
“Tanzania was a particularly appealing destination for us due to its vicinity to major seaports, relatively stable political environment, oil and gas field developments and fast growing economy,” added Helenius. “Rice demand there is growing by 11.4 percent every year and it is 1.7 times more expensive in Tanzania than globally.”
The project is a joint venture with Lukuliro Farm Holdings, a Tanzanian company currently owned by James Maynard who is in negotiations to buy 5,600 hectares of land in the region. Lukuliro’s assets will be injected into Trigon Rufiji in return for a 10 percent stake in the special purpose vehicle.
Manyard and his team have been working on acquiring this land for over five years – it’s a lengthy process that involves various tiers of government and community.
“There has been a gradual shift in understanding within the Tanzanian government that foreign capital is needed and also that there is a clear linkage between commercial farming and smallholder farmers’ own productivity,” he said. “Many have realised that smallholders have not improved much over several years.”
“There is still some resistance to the idea of foreign ownership at some levels of the government but we have made excellent progress not least because the Tanzanian president, and the local community, have given the project their blessing,” he added. “I expect to finalise formalities within a month.”
Some 90 percent of the special purpose vehicle is up for offer in the form of shares. Trigon and Maynard are targeting private investor participation, mostly from family offices, to account for at least one third of the deal instead of development finance institutions and other public institutions.
Trigon and Maynard hope Trigon Rufiji will start paying dividends at the end of 2018. They expect exit opportunities after six to eight years, including a strategic buyout, a sovereign wealth fund sale, a private equity sale and an IPO, according to Helenius.
Trigon Capital, which has $1 billion of assets under management, will be the project manager and will be compensated in shares in Trigon Rufiji dependent on performance, up to a maximum of 20 percent. Trigon Capital employees will also be hired to senior positions and paid “market rates for their activities,” said Helenius.
Trigon Capital will also be awarded shares in the project based on its performance over a six-to-eight-year period.