The signs aren’t good for MIS plays after major upheaval in 2009.
EVENTS of the past week show the collapse of major agribusiness players Great Southern and Timbercorp continues to haunt the managed investment scheme sector, which is dealing with a crisis of confidence from investors and bankers.
With a number of MIS-linked corporate plays on the boil, diversified agricultural company Elders put the cat among the pigeons last week by revealing it had contracted Ernst & Young to conduct a review of all its forestry assets because of the uncertainty in the sector.
Elders CEO Malcolm Jackman said normally Elders would only assess one third of its assets each year.
“We have chosen to do this in view of the increased uncertainty within the sector arising from the events of last year and developments specific to our company,” Mr Jackman told ASX investors.
“There is now an unprecedented volume of forest and plantation land on the market as a result of the liquidation of other industry participants and the sale of forest estates.”
Furthermore, Elders is seeking a review of growth rates of its 2004 and 2005 project plantings, as well as forest assets in drought- or disease-affected areas.
“There is some uncertainty about the MIS market this year and the impact of recent corporate news flow on confidence in the sector,” Mr Jackman said.
Given what is happening in the market, this something of an understatement, especially as Elders has significantly written down its big investment in a rival industry player, Forest Enterprises Australia, which it said had an uncertain future.
While Elders remains bullish that it can meet its $53 million target for MIS sales this year, it’s clear that the bad news is hitting many players, and a big write-down of current forest values could have a domino effect across the sector, which could put further negative sentiment right in the middle of peak selling season.
And this is occurring after a catastrophic 2008-09 financial year in which MIS sales plummeted to around $250 million, less than a quarter of the previous year, which was at or near the industry’s peak of $1.1 billion sustained over three seasons.
Last year, research house Australian Agribusiness Group forecast a rise of around 15 per cent in sales in 2009-10, based on the assumption that survivors would start to regain some of the territory lost by the collapses of Great Southern and Timbercorp, which had accounted for about one third of the market in 2007-08.
In February, Tasmanian-based forestry giant Gunns said that the MIS market remained uncertain and that it would release a guidance report in respect of its activity in this market during the next month. To date it has not.
It is in this difficult environment that a number of companies have engaged in corporate activity – in many cases without clear results.
Earlier this year, Subiaco-based MIS player AACL announced IPO plans, which included an $11 million fund raising for its business, which focuses on broadacre cropping. It initially expected to be listed on the ASX by late February but there’s been no news on that front, despite encouraging word from its corporate adviser, Paterson Securities.
Melbourne-based Forest Enterprises requested an extension to its suspension from the ASX last week after revealing it is looking to restructure its debt.
And then there is Rewards Group, a private player that raised about $56 million last year. In just a few months it has careened from a merger with listed associate ARK Fund, to a $28 million IPO and, most recently, to a private equity raising of around $40 million. There is no word on its progress.
According to a newly released version of its 2008-09 annual report, Rewards extended its banking facility to March 31, while it engaged in the capital raising.
The supplementary annual report also appears to highlight some of the issues that may be making life difficult for all MIS players with respect to third-party financing of investors in their schemes.
Rewards has an MIS loan book of $30.7 million, of which it recorded impaired loans of $4.2 million or nearly 14 per cent. That is a big jump from $1.9 million, or around 5 per cent, of the previous year’s loan book of $36.5 million.
But with banks wary of this lending, WA Business News is told that the market could be severely affected because, traditionally, about 70 per cent of MIS investors are financed by the product provider.
One way MIS companies are seeking to diversify away from the sector’s heightened risk is to seek more patient wholesale or institutional investors to whom they can sell their services.
Nedlands-based TFS Corporation is one company to have stated that its move into wholesale markets, dubbed Beyond Carbon, will fundamentally change the business’s profile, representing 50 per cent of new product cash sales for the current financial year.
In its recent first half results announcement, TFS said it had sold 350 hectares for a fee of $29.8 million, with receipt of the cash expected this month (April). Its second round is 500ha, which it said was on track.
Rewards was also moving into this wholesale arena, though its clear-cut plans appear to have been watered down during the period of its recent corporate manoeuvrings. In its original 2008-09 annual report, released late last year, Rewards said it planned to have the Aquila Capital AgrarPORTFOLIO Fund opened in Germany in late 2009 with an objective to raise up to $40 million.
Also to be released in late 2009 was the First Australia Carbon Fund, which was planned to be up to $250 million, with the first $25 million underwritten by Standard Bank.
In its supplementary annual report, Rewards has removed the detail of the fund names and investors involved, suggesting it was developing funds roughly matching those listed above.
