Another $50m needed for Farm Systems Uruguay

NZ Farm Systems Uruguay chairman Keith Smith. Photo / Greg Bowker.

New Zealand Farming Systems Uruguay estimates it needs a further US$50 million ($68.7m) to US$60m to complete development of its 35,000ha of farms.

That is on top of the US$30m raised by selling a first tranche of bonds in Uruguay, announced in June.

Chairman Keith Smith said about half the additional funding was expected to come from a further bond issue of around US$30m due in the second half of the current financial year.

The remainder was to come from the outright sale, or sale and leaseback of some farms, or other funding arrangements, he told Farming Systems' annual meeting today.

With the share price now at a substantial discount to net asset value, the sale of farms was a preferred option to equity raising, Mr Smith said.

"Although our intention is to complete the farm development by mid-2012 we are carefully monitoring the cost and benefit of each stage of development."

The US$30m already raised from bonds would enable five more milking sheds to be developed, connection of irrigation to 1600ha for the coming summer, a start to an electricity improvement project, and the purchase of further irrigation units for operation the following summer.

Farming Systems is shortly to settle the sale of the undeveloped 2000ha Casupa farm for $3500 per ha, marginally lower than the June valuation. An 800ha farm was sold at valuation, and above the original purchase price, in June.

Smith said the company had "endured tough, unexpected and for the most part uncontrollable hurdles" in the past year which had hurt investor confidence.

That was reflected in the significant discount in the company's share price relative to its net asset backing.

Falling dairy prices, the international credit crunch, and a one in 30-year drought hard on the heels of other difficult climatic conditions had a heavy impact on Farming Systems' short term results, said Smith.

Several factors gave the company good reason to be confident.

Those included the performance of irrigated pasture, continuing development of Uruguayan farming talent, and recent increases in international dairy prices.

Winter had seen ground moisture levels increase to seasonal norms, he said.

Smith also told the meeting a $17.8m performance fee due to PGG Wrightson had yet to be paid. Farming Systems intended to pay it in cash at the end of next March from a combination of banking arrangements and asset sales.

Changes to PGG Wrightson's fund management and farm management agreements with Farming Systems were also announced today.

It was believed the changes, which merged the two agreements, would be to the benefit of all stakeholders, said Smith.

The changes included Wrightson reducing the management fee percentage from 1 per cent to 0.75 per cent for gross assets above US$400m.

Wrightson would also accept shares rather than cash for any future performance fee payment, while a management performance review clause would include the ability to terminate the agreement for non-performance.

"We believe this is an excellent outcome for the company, particularly when remembering the reduction in the management fee from 1.5 per cent to 1 per cent from July 2008," Smith said.

Farming Systems shares last traded up 3c at 47c, having ranged between 35c and $1.16 in the past year.

- NZPA