TFS boosted with $120m from US investor

Agribusiness TFS Corporation has received a boost to its share value after announcing it had signed a deal with a US-based institutional investor potentially worth $120 million over six years.

Shares in the Nedlands-based company were up more than 6 per cent in morning trade following news of the deal, a confidential investment management agreement (IMA) which will see the American investor initially invest $20 million over the life of the 180 hectare Indian sandalwood plantation to be planted this financial year.

It has also secured option to plant an additional 180 hectares per annum for next five years.

TFS said the IMA was subject to and conditional upon the settlement of a related land acquisition agreement and Foreign Investment Review Board (FIRB) approval.

The east Kimberley-focused Indian sandalwood plantation owner and manager indicated it will be paid an upfront payment for the purchase of the land and establishment of the plantation as well as management of the plantation, and a performance bonus once a hurdle rate of return has been achieved by the US investor.

The company said this investment, and the forecast of 500 hectares of non-managed investment scheme sales puts it on track to sell over 500 hectares of non-MIS in FY10, an increase of over 40 per cent on last financial year's non-MIS sales.

Shares were up five cents, or 6.17 per cent, to 86 cents per share at AEST1330.

TFS said Indian sandalwood sits in the high return category compared to traditional hardwood and softwood products.

The heartwood trades for in excess of $110,000 per tonne on average, having risen at a compounding rate of over 18 per cent per annum over the past 18 years.

Full announcement below:

AAA RATED US BASED INSTITUTION COMMITS TO TFS SANDALWOOD PLANTATIONS
26 May 2010

Highlights
- AAA rated US based Institution enters into an Investment Management Agreement pursuant to which TFS will manage a 180 hectare Indian sandalwood plantation to be planted in FY10 .
- Investment by the Institution over the life of the plantation excluding performance bonuses to TFS anticipated to be circa $20m.
- Secures option to plant an additional 180ha per annum for next 5 years to 2015 with this investment anticipated to be, approximately, $100m if all options are exercised.

Australian agribusiness TFS Corporation (ASX: TFC) has signed a confidential Investment Management Agreement (IMA) with a US based institutional investor potentially worth $120 million over six years. The IMA is subject to and conditional upon the settlement of a related land acquisition agreement with TFS. The land acquisition agreement is conditional on, amongst other things, the Investor obtaining Foreign Investment Board approval. Under the IMA TFS is paid an upfront payment for the purchase of land and establishment of the plantation, annual payments for plantation management, and a performance bonus upon a hurdle rate of return being achieved by the investor.

This investment is in addition to the recently announced (May 4) forecast of 500 hectares of Non-MIS sales, and puts TFS on track to sell over 500 hectares of Non-MIS in FY10 up over 40% on FY09 Non-MIS sales.

"This institutional investment continues the rapid and fundamental transformation of TFS from a company heavily reliant on yearly MIS sales and its associated income to one that will receive its investment and income from predominantly more stable institutional and private sector sources," TFS Executive Chairman Frank Wilson said.

"Even in a tumultuous economic environment, TFS's forestry products continue to attract the support of leading global institutions and private investors by entering longer term investment agreements. This gives TFS the revenue stability to deliver on its strategy of becoming the world's leading integrated Sandalwood supplier."

"Our strategy to restructure our products to attract institutional investors has proven to be the right one in the wake of the MIS market fallout. Together with the continuing increase in profitability of our sandalwood processing arm Mt Romance, TFS is well positioned as our first Indian Sandalwood plantations are harvested in the next three years," Mr Wilson said.

Indian Sandalwood sits in the high return category compared to traditional hardwood and softwood products. The heartwood trades for in excess of $110,000 per tonne on average, having risen at a compounding rate of over 18 per cent per annum over the past 18 years.

Successful transition of business model

The strategy put in place by the TFS Board and Management team in 2008 to transition the sales model to capture the global institutional forestry investment flows and reduce reliance on retail MIS investors is taking shape.

Global Institutional Forestry Investment accounts for annual investment flows of $2.5 billion and Indian Sandalwood will now take its place as a high return category within this asset class. Following fluctuations across global markets, interest rates and currencies there is a growing institutional demand for investment into hard assets, and the TFS plantation investment fits neatly into that thematic.