PSG cedes a Zambia farming stake to Norfund

JSE-listed investment holdings company PSG Group has cut its stake in its new commercial farming venture in Zambia, after Norwegian sovereign fund Norfund agreed to invest $10m in the venture, Chayton Atlas, to fund its expansion.

Norfund’s investment would fund investments in additional farms or businesses providing grain drying, storage, processing and distribution services to the Chayton farms and other farms in Zambia.

Piet Mouton, CEO of PSG, said in an interview this week that PSG’s stake, indirectly held via majorityowned Zeder Investments, would be cut from just over 93% to 73.4%. Norfund’s investment gives it a shareholding of 21.8% and the rest is held by management, he said.

PSG invested more than R276m this year in Chayton, its first major agricultural investment outside SA, which has been made as part of a wider strategy by the Stellenboschbased company to expand into the continent. Some of PSG’s key investments include its majority stakes in Capitec Bank and Zeder, the latter holding its agricultural-related interests in companies such as Pioneer Foods and drinks manufacturer Distell.

Mr Mouton said the investment in Chayton by Norfund was a sign of confidence in the agricultural company, which is developing large tracts of commercial farmland in Zambia and has plans to invest elsewhere in southern Africa.

Andrea Berry, an executive director at Chayton, said the company had 4,200ha under irrigation and 865ha under rain-fed production. It had a dual crop rotation system, planting wheat during the winter and soya during the summer months, Ms Berry said.

Mr Mouton said PSG did not mind its shareholding being diluted as long as it achieved the group’s strategic vision of developing a viable commercial farming venture in Zambia and other countries.

“For us there are certain advantages of having an organisation like Norfund being invested. It is a sovereign fund, so obviously from a political perspective they have a way of handling political issues if they were to arise, and that is key to us,” said Mr Mouton.

“They are also committed to do additional things over and above the investment they have made, like investing in social responsibility projects, which is part of their bigger initiative to promote investment in developing countries.”

Mr Mouton said the investment in Chayton gave Zeder a new asset that would become profitable over time. He expected Chayton to start making a profit within the next three years.

“It brings something exciting to Zeder’s portfolio because a big part of the assets are stable companies like Pioneer and Distell, as well as other agricultural businesses we have. With Chayton, we are creating something new that will provide a little bit of return at the end of the day,” Mr Mouton said.

Ms Berry said Chayton planned to increase the area under irrigation in Zambia to 6,000ha by 2015, and was also evaluating further investment opportunities to increase irrigation capacity to 10,000ha over the next five years.

“In order to benefit from economies of scale, we believe that the most efficient agricultural model is to have 20,000ha under management, with 10,000ha under irrigation,” she said.

Ms Berry said Chayton believed that 10,000ha would be the optimum production size to establish services businesses that connected with the company’s primary production sites to create economies of scale and establish vertically integrated regional agri-businesses. The company planned to expand beyond Zambia, she said.