TFS settles $120m US investment

Agribusiness TFS Corporation has received a boost, settling a transaction with a US-based institutional investor potentially worth $120 million over six years.

The Nedlands-based company announced plans for the confidential investment management agreement in May.

Under the deal, the American investor initially invests $20 million over the life of the 180 hectare Indian sandalwood plantation.

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

At the time, TFS said the IMA was subject to and conditional upon the settlement of a related land acquisition agreement and Foreign Investment Review Board approval.

See company statement from May 26 below:

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.