Soros Backed IPO Adecoagro (AGRO) Provides Hard to Find Access to Farmland

Wednesday, January 26th, 2011

by Trader Mark, Fund My Mutual Fund

No matter what you think of George Soros’ politics, he has his nose in all the right places in the investment world.  I’ve long bemoaned the lack of avenues to invest in farmland for the regular investors – indeed aside from Argentina based Cresud (CRESY), I don’t think there is another option – but this week’s slate of IPOs brings us Adecoagro (AGRO).  This sort of thing won’t be hot money, but if you give me a 40 year horizon, I say arable land (or water) will be the best investments on earth.   And I’m not the only one:

• [Jun 5, 2008: NYTimes: Food is Gold, So Billions Invested in Farming]
• [Jun 14, 2008: Bloomberg: Farmland Reaps Bonanza for TIAA]
• [Jun 2, 2009: The Economist - Outsourcing's 3rd Wave - Buying Farmland Abroad]
• [Dec 31, 2009: Bloomberg - Ethopian Farmers Lure Investor Funds as Workers Live in Poverty]

Meanwhile I am sure all the attention in the short term will go to the hype machine that is the IPO of Digital Media.

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The English website can be found here

Adecoagro is currently one of the leading companies in the production of food and renewable energy in South America. Present in Argentina, Brazil and Uruguay, our main activities include the production of grains, rice, oilseed, dairy products, sugar, ethanol, coffee, cotton and cattle meat.

Since its creation in 2002, the company´s growth was based on the implementation of a sustainable efficient production model, working on its own land and managing risk through diversification.

Unfortunately, there is a lot of exposure to the politically unstable country of Argentina, but that has not stopped investors from giving Cresud a rich valuation.

Bloomberg gives us a closer look at the company

• Adecoagro SA, a farmland venture in South America that’s backed by billionaire George Soros, plans to raise as much as $429 million in an initial public offering in the U.S. as food prices surge. As much as 21.4 million new and 7.14 million existing shares will be offered for $13 to $15 each, the Luxembourg-based company said today in a U.S. Securities and Exchange Commission filing.
• The company’s main shareholders include Pampas Humedas LLC, an affiliate of Soros’s Soros Fund Management LLC, which owns about 34 percent and will reduce its stake to about 21 percent after the offering.
• As part of the offering, a subsidiary of Qatar’s Doha-based sovereign fund, which already owns 6.5 percent of Adecoagro, may buy as much as $100 million of the stock. The IPO is scheduled to price on Jan. 27, according to data compiled by Bloomberg.
• The company said in the filing it plans to use $230 million of the proceeds to build a sugar-cane processing plant in Brazil and may spend about $145 million on “the acquisition of farmland and capital expenditures required in the expansion of our farming business.”
• The new sugar mill in Ivinhema city, Brazil, will process 6.3 million tons of cane by 2017, more than doubling Adecoagro’s capacity to 11.5 million tons a year. The company said it may also use cash and more debt to fund the construction of the Ivinhema mill.
• Adecoagro grows rice, coffee, soybeans, wheat and corn in about 288,000 hectares (712,000 acres) of farmland, an area that’s bigger than Jacksonville, Florida. It owns 38 farms in Brazil, Argentina, and Uruguay that’s valued at a combined $784 million, the filing said.
• Adecoagro said it owns 21 farms in Argentina, 15 in Brazil and two in Uruguay. It operates rice processing facilities, has a dairy operation with 4,500 cows, owns two coffee processing plants, seven grain and rice conditioning and store plants and two sugar and ethanol mills.

IPOFinancial per TheStreet.com has more data:

• The company has seen its sales explode, with a CAGR of 48% from 2007 to 2009 and +38% improvement in the first three quarters of the year. Among the key factors for growth has been sales in corn and soybean, which are up +112% and +77%, respectively, in the first nine months of 2010 from the comparable period in 2009. That being said, the largest segments by total revenue remain rice and ethanol, the latter of which will expand production following the allocation of IPO proceeds.
• At first glance, it may be puzzling as to why a company growing so fast, with a reasonable debt structure, is still not recording an accounting profit. In reality, AGRO has had to incur non-cash expenses that have skewed its earnings. Even though higher food and cattle prices have increased sales, the accounting benefit is somewhat offset because the markup in total inventory value has made depreciation expenses much higher.
• In the first nine months of 2010, it incurred more than $100 million in charges as a result of faster depreciation and amortization. It also ran into a problem in its sugar market last year, as sugar prices fell by 50% from their early 2010 high of $30 before making a late-year recovery to a 30-year high.

No position

Copyright (c) Trader Mark, Fund My Mutual Fund

Tags: Arable Land, Argentina Brazil, Billionaire, Bloomberg, Brazil, Cresud Cresy, Dairy Products, Emerging Markets, energy, Ethanol, Farmland, George Soros, Gold, Hot Money, Hype Machine, Initial Public Offering, Investment World, Investor Funds, Leading Companies, Managing Risk, Oilseed, Production Model, Tiaa, Unstable Country
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Emerging Markets Diary (September 13, 2010)

Saturday, September 11th, 2010

Emerging Markets Diary (September 13, 2010)

Jack Dzierwa, co-manager of the Global MegaTrends Fund (MEGAX) and Global Emerging Markets Funds (GEMFX), recently went searching for investment opportunities in Latin America. Over the course of one month, Jack visited Mexico and three countries that Jack calls the “ABCs of Latin America”—Argentina, Brazil and Chile. Jack sat down with our video team for a series of videos recapping what he observed. Watch the interview clips here.

Strengths

• Indonesia’s foreign exchange reserve reached $81.3 billion in August, representing an increase of $15 billion year to date, thanks to rising foreign direct investment as well as portfolio inflows attracted by an outperforming stock market and strengthening currency.
• Philippines’exports grew by a higher than expected 35.9 percent in July from a year earlier, driven by robust electronics sales. The Philippine stock market rose to an all time high on Thursday, reflecting reduced country risk profile after the presidential election, improving macroeconomic data, and better earnings outlook.
• China’s imports in August registered a better than expected rebound to 35 percent year-over-year from July’s 23 percent, led by imports of machinery, electronic equipment, and autos. Imports from Southeast Asia, the U.S., and Japan contributed to the rebound.
• Thailand’s consumer confidence increased to a 28-month high of 72.8 in August from 71.4 in July, owing to improving economic growth outlook.
• While the recent news from Mexico is dominated by escalating violence, a positive development this week came up from the Mexican Tax Agency (MTA). According to the data from MTA, the number of tax payers in Mexico this year will likely reach 35 million, compared with 26.4 million last year. This is an optimistic trend as the country wants to diversify its reliance on oil revenue. The current tax take as a proportion of GDP in Mexico stands at around 10 percent and is well below Peru (16 percent), Argentina (20 percent) and Brazil (25 percent).
• Strong new car sales are coming out from various parts of Latin America. In Colombia, in August, the sales were up 28 percent year-over-year, while in Chile the sales were up 61 percent.
• It appears that Chilean wine exporters are faring quite well despite appreciation of the peso (10 percent YTD)—for the twelve months ending July, exports were up 9.2 percent in value terms and 21 percent in volume.
• Russian companies are taking advantage of a plunge in interest rates to triple borrowing.

Weaknesses

• Malaysia’s industrial production rose a slower than estimated 3.2 percent year- over-year in July, consistent with a slowdown in exports, especially to Japan, the U.S. and China.
• Although the increase of average property prices in 70 major cities in China continued to moderate on a year-over-year basis in August, decelerating to 9.3 percent from July’s 10.3 percent, absolute price levels remained unchanged for a third month sequentially despite the government’s tightening measures since April.
• Walmex’ same-store-sales in August were up 1.5 percent, weaker than the consensus estimate of 3 percent.
• The worse than expected global economic recovery is affecting the domestic recovery in Russia, according to Renaissance Capital report. Gross domestic product may rise at annualized 2.9 percent rate in the third quarter and 2.7 percent in the fourth quarter, down from the previous forecast of 3.2 percent growth.

Opportunities

• China seems committed to expedite construction of affordable housing, which has been only a fraction of total completions in the last decade. This is to diffuse tension from lofty home prices in major cities by increasing designated land supply, expanding sources of funding, and holding local officials accountable. As affordable units are typically much smaller than the average model sold on the market, these projects are likely to be more materials intensive because of more units per building. Given government’s aggressive target that affordable housing should average 25 percent of total housing starts every year from 2010 to 2012, demand for construction materials may receive decent support going forward.
• Falabella of Chile sees further potential in Latin America. The company, which currently has 11 stores in Colombia, plans to open an additional six in that country in smaller cities with populations of 400,000-1.6 million.
• Stability in Colombia is also attracting more and more institutional investors—the recent IPO of Davivienda (financial services company) was 12 times oversubscribed
• Will LAN airline, which is in the merger discussions with TAM of Brazil, become an acquisition target of International Airlines Group (IAG), created by the merger of British Airways and Iberia? The British press speculates that LAN is on top of 12 potential targets of IAG.
• We regard the statement from Fidel Castro that the economic system in Cuba is no longer working as a prelude to forthcoming reforms in the country. The Cuban government has been gradually relaxing its stronghold on the economy and we remain hopeful that a greater opening of the country will lead to much needed investment and transformation.
• In the build up to Poland’s co-hosting of the June 2012 European Soccer Championship tournament, Credit Suisse points out that there has been an established pattern over the past eight world cup tournaments for host nations’ equity markets to outperform global equities (in U.S. dollar terms) in the 12 months preceding the games, with typically poor relative performance in the aftermath. This year’s host, South Africa, has not been an exception.

Threats

• Rising inflation expectations recently in China might contribute to more policy rumors and market volatility, especially when there is little clarity of whether policymakers are deliberating on a second round of property tightening against recalcitrant home prices.
• Across the Eurozone, industrial production momentum appears to have overshot its typical association with PMI new orders less inventories reading, creating a concern for a near term pullback in Eastern European economic recovery.

Tags: Argentina Brazil, Autos Imports, Brazil, China, Consumer Confidence, Country Risk, Electronics Sales, Emerging Markets, Exchange Reserve, Foreign Direct Investment, Growth Outlook, Interview Clips, Macroeconomic Data, Megatrends, Megax, oil, Oil Revenue, Philippine Stock Market, Risk Profile, Robust Electronics, Russia, Southeast Asia, Tax Payers, Video Team
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