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UPDATED: Aquila Capital, MyFarm JV seeks $100m for trust offering second mortgages to farmers

Mon, 20 Oct 2014

UPDATED 1PMGermany's Aquila Capital and New Zealand farm investment company MyFarm are seeking up to $100 million from mainly offshore wholesale investors for a trust that will provide secondary mortgages to farmers behind loans from ANZ New Zealand.

ACF NZ Dairy Farming Trusts expects to offer interest of at least 6 percent to investors in the trust and capital growth of between 40 percent and 60 percent over a 10-year term, executive director Andrew Watters said on a conference call. It has negotiated a shared security agreement with ANZ as the primary mortgage provider, he said.

"We're bullish in terms of investor returns albeit there will be fluctuations," Watters said. An interest rate of at least 6 percent plus a balloon payment at the end "does look relatively attractive versus bonds."

Farmers will be charged interest based on the Fonterra milk price for 10-year second mortgage funding, with any 'land-priced interest' when the loan principal is paid based on the percentage change in the REINZ Dairy Land index, according to the firm's presentation.

The trust isn't making an offer to the public requiring a prospectus and instead has an investment memorandum for the offshore investors, who have to put in a minimum $750,000.

Based on a milk price of $5.25 per kilogram of milk solids, annual interest would be 2.5 percent, with any 1 cent/kgMS movement amounting to a 0.02 percent movement in the interest rate, according to the presentation. Based on the actual milk price in 2013/14, interest would have been 8.8 percent, it said.

Dairy Farming Trusts would provide farmers with "an alternative to introducing outside equity or taking on high levels of senior debt," it said. "With high levels of senior debt farmers pay high credit risk margins and put their whole business at risk during times like these."

Benefits for the farmer include less dilution of any capital gains than from using traditional equity partnership funding, it said.

The firm cited a 2012 report from ANZ Bank that estimated New Zealand agriculture needed $210 billion through until 2050 to enable production growth and some $130 billion to support farm ownership succession, particularly for family farms. The capital constraints would also affect sharemilkers looking to buy their first farm, farmers buying neighbouring properties and investment in new milking plant and other assets.

MyFarm has $550 million of farm assets under management, and more than 300 syndicate investors in a mix of dairy and sheep and beef farms in New Zealand, according to its website.

In 2010, Aquila Capital raised more than $100 million for two funds which invested in New Zealand farms managed by MyFarm. Hamburg-based Aquila manages more than 7.4 billion euros in alternative investments, according to its website.



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UPDATED: Aquila Capital, MyFarm JV seeks $100m for trust offering second mortgages to farmers