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FREQUENTLY ASKED QUESTIONS ABOUT THE AFRICAN AGRICULTURE FUND

What is the relationship between AAF and Phatisa?

The African Agriculture Fund (AAF) is a limited life company (L.L.C.) incorporated in Mauritius. Phatisa Fund Managers Limited, incorporated in Mauritius, is the discretionary fund manager of AAF and responsible for the investment, monitoring value addition and the realisations of AAF.

Who are AAF’s investors?
The target final closing capitalisation of AAF is US$ 300 million and Phatisa successfully first closed the Fund at US$ 151 million from the following leading international institutional investors:

What kind of businesses does Phatisa Fund Managers invest in?
The Fund's priority investments are in food production and distribution in cereals, livestock farming, dairy, fruit and vegetables, beverages, FMCG food, crop protection, logistics, fertilisers, seeds, edible oils, smallholders and agri services in Africa with a focus on sub-Saharan Africa.

Phatisa will invest in transactions such as: management buy-outs and buy-ins, acquisitions, expansions, early stage equity (minority/majority), outgrower and smallholder developments.

The investment deal target is set between US$ 5 - 30 million.

What are Phatisa’s criteria in selecting companies in which to make investments?
Phatisa seeks to invest in companies that satisfy the following criteria:

    • a minimum investment requirement of US$ 5 million and maximum US$ 30 million;

    • an experienced management team with a compelling vision for the business and a willingness to collaborate with a financial investor;

    • a proven financial, operational track record and potential for future growth;

    • a commitment to transparency, proven sustainable industry competitive advantages, attractive valuation; and

    • an ability to achieve a profitable liquidity event in the medium term.

Potential transactions are also assessed on the level of appropriate local partners and smallholder participation brought on board to stimulate local economical development.

How does a company/management team apply for funding?
If you or your company has a business venture that meets our strict investment criteria, please submit your proposal by completing the AAF Funding Application Form available in either MSWORD or PDF format and submit it electronically via the Fund’s investment submission portal - hosted on the our landing page under the heading African Agriculture Fund. PLEASE NOTE: All information fields are compulsory. This documentation will allow us to have a better idea of your company or proposed projects.

Can Phatisa assist with drawing up a business plan and proposal?
We firmly believe that the company/owner/management team applying for investment should initiate, drive, finalise and take ownership of the documentation required to make a successful fund application.

Are there any special conditions that apply when Phatisa considers investment in a venture?
Yes, specific conditions that generally apply when considering funding include:

    • Phatisa invests only in agriculture, food businesses and food value chain (excluding: bio-fuels, timber and alcoholic beverages).

    • Phatisa only invests in African countries.

    • Phatisa does not invest in informal, micro enterprises or SME companies looking for an investment less than US$ 5 million.

    • Phatisa will not consider seed capital, short-term bridging or debt finance.

    • Phatisa has a commercial approach and only supports commercially sustainable businesses with a proven track record.

    • We do not provide grants or soft loans.

    • Companies in which Phatisa invests must adhere to social and environmental codes of conduct.

Is there any funding available for SME companies?
AAF set aside US$ 30 million for SME development through the AAF SME Fund, a sub-fund to be independently managed. Investments in the SME sector will range up to US$ 4 million in any single potential investment.

What is the AAF SME Fund's investment criteria?
The SME Fund Manager seeks to invest in companies that satisfy the following criteria:

    • a minimum investment requirement of US$ 0.15 million and maximum US$ 4 million;

    • no more than 300 permanent employees; and

    • a net asset value of no more than US$ 15 million.

Any queries of SME business proposals can be submitted to SME Fund Manager, Databank Agrifund Manager Limited - Dennis Matangira.

How long does it take to approve an investment?

Phatisa applies a rigorous investment process. Every new investment opportunity will initially be evaluated by Phatisa. The pre-investment process and time required is largely driven by the applicant and depends on the quality of the initial proposal as well as the experience and effort put in by the management team.

If a prospective investment is deemed of sufficient merit, a screening paper is prepared for circulation to the Investment Committee. An investment will not be recommended unless its investment rationale can be clearly defined and documented. The screening process allows Phatisa to make an informed decision quickly and give prompt feedback to the potential investee, company or sponsors.

Recommendation by the Investment Committee and Phatisa Fund Managers’ final Board approval triggers the legal implementation of the transaction.

Does Phatisa become a shareholder in the company?

The Fund seeks to buy majority and significant minority interests in potential portfolio companies, where it seeks to have board representation or other meaningful shareholder rights or both.

Will Phatisa require board representation on its portfolio companies?
While respecting management operational independence, which includes the day-to-day running of the porfolio company - Phatisa wants to be involved in the business objectives and strategy, as well as good corporate governance. Phatisa’s priority is to create long term value for all stakeholders and therefore go beyond a simple representation in the capital of the company. The best way to achieve this goal is for Phatisa to have board representation, demonstrating a genuine involvement in the future of the company.

Beyond financing, what does Phatisa bring to a portfolio company?
The Fund’s investment vision is to offer real added value to its portfolio companies, notably by assisting them in strategic planning and operational execution, screening and recruiting management team members and building management capacity, strengthening corporate governance practices and implementing financial controls, positioning and preparing portfolio companies for a liquidity event.

Which exit strategies does Phatisa use?
One of the key criteria Phatisa considers when making an investment is the ability to achieve a liquidity event over four to seven years. The exit strategy is always well-thought through in order to secure the combined interests of the Fund, the company, its founding members and management.

Exit strategies will include the sale of the Fund’s interests in portfolio companies to trade players, majority shareholders, local communities, secondary MBOs and listing on local exchanges, which are seeing increasing liquidity as asset management in Africa grows, in addition to dual listings, which improve fungibility*.

* fungibility - A good or asset's interchangeability with other individual goods/assets of the same type. 

What is Phatisa's stand on large-scale land acquisition projects and the issue of food security in Africa?
 Land issues are very sensitive from both a social and a political point of view. It is a well debated fact that a foreign owned large-scale land project targeted at exporting food products is at odds with food security in Africa. But being an indigenous African fund manager of a multi national private equity initiative – the Africa Agriculture Fund, Phatisa believes these two goals: large scale land projects and food security most certainly can be and should be compatible and sustainable.

The African Agriculture Fund is a socially responsible investment vehicle whose approach to business is sustainable, environmentally friendly and closely aligned with the interests of the people and communities impacted by its investments. A Socially Responsible Investment Manual has been compiled in order to provide guidelines, and incorporates an environmental and social risk management system. This manual also includes an Environmental and Social Risk Management System and, a breakthrough for agri business private equity, a Code of Conduct for Land Acquisition and Land Use in agricultural and agri business projects. Added to this, an Anti Money Laundering Policy and a Tax and Transparency Policy are in place and have been formulated in strict compliance with global and Mauritian legislation pertaining to anti-money laundering, financing of terrorism and corporate governance.

 

The severity of the food crisis has led the international community and development agencies to mobilise themselves and form a global partnership to address the crisis affecting both agriculture and food production.

Multi national public to private partnerships need to be based on four components:  

    • to design an international strategy and maintain political awareness on food issues;

    • to boost agronomic expertise and build a global knowledge network;

    • to re-orient financing from both public aid agencies and states towards agriculture investment; and finally

    • involve local communities and producers in economic activity.

In order to ease the pressure on Africa’s most dependent economies, the international community will need to support and finance the implementation of public agricultural policies. Key to achieving this is:

    • The promotion of new agricultural models that are more productive, more energy efficient, more respectful of the environment (to combat climate change, preserve biodiversity, mitigate soil degradation and combat desertification);

    • The promotion of agricultural investments involving small farmers and rural entrepreneurs that can contribute to both agricultural production and economic growth in Africa;

    • Improving professionalism and the activities of stakeholders in the rural world (Stakeholders include administrations, territorial authorities, professional and inter-professional organisations);

    • Advancing the agricultural profession and encouraging young farmers;

    • Combining the development of marketed agricultural products and subsistence sectors;

    • Structuring and organising domestic markets;

    • Adopting mechanisms to mitigate price volatility and manage risks;

    • Developing infrastructure (tracks and roads, telecommunications, energy, water and land use planning); and

    • Encourage African governments to adopt best practice in land ownership, consultation processes around large projects and ensuring maximum development impact of investments.

The African continent has huge potential in terms of its own food security and exports. This will attract institutional and private players eager to increase food production and exports.

The only and most important consideration for businesses buying large scale farming projects should and must be sustainable investment - building long term equity value for all.

 

CONTACT DETAILS

If you require more information on the AAF, please contact us:

Izelle le Roux-Owen  Corporate Communications & Investor Relations
Email izelleleroux@phatisa.com

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Last Update: 22 May 2013
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