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African Agricultural Capital

African Agricultural Capital. Meeting the financing needs of businesses working with smallholder farmers in East Africa Patrick Ndagu Investment Manager. This presentation. AAC mission and targets Investment parameters Investment products Progress to date Challenges.

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African Agricultural Capital

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  1. African Agricultural Capital Meeting the financing needs of businesses working with smallholder farmers in East Africa Patrick Ndagu Investment Manager

  2. This presentation • AAC mission and targets • Investment parameters • Investment products • Progress to date • Challenges

  3. AAC Mission & Targets • Mission • To be a leading provider of risk capital to East African SMEs operating in the agriculture value chain in ways which benefit smallholder farmers • Targets • To earn a minimum net return of 5% per annum on funds invested by shareholders • To mobilize increased investment capital into the East African agricultural sector • To achieve a demonstrable positive impact on rural development in the region through increased employment and market efficiency.

  4. AAC investment parameters • Current investment parameters • Minimum 80% by investment number and value in the core region (Kenya, Uganda, Tanzania) • Up to 20% of capital may be invested in neighbouring countries (including Ethiopia, Rwanda, Zambia & Malawi) • Maximum AAC investment at 12% of AAC’s new capital base ($2m) • Minimum investment size of $100,000 • Portfolio diversification by sub-sector and value chain location • Expansion or growth capital to early & mid stage businesses

  5. AAC Investment products • Appropriate instruments for investee businesses • Debt finance in functional currency at standard commercial rates to businesses which have positive cash flow and good potential DSCR • Quasi-equity instruments structured as loans but including a P&L based variable interest premium • Equity finance to higher risk businesses (eg start-up or early in business lifecycle with high reinvestment requirements) • Co-financing opportunities with investment partners active in the region • Leverage AAC capital • Risk-sharing

  6. AAC – Progress (1) • Active investments • Western Seed company, Kenya (L & Q/E) AAC’s investment supporting a significant increase in expansion over a three year period • Real IPM Company, Thika, Kenya (L) AAC’s investment enabling the business to complete its development and move into full production of IPM products • Africert, Nairobi, Kenya (E & L) acquire shareholding and loan in east Africa’s first fully accredited certification business for horticulture, organics, fair trade certification, etc • Earthoil, Athi River, Kenya (Q/E) significant increase in production capacity for this fast-growing processor and exporter of cold-pressed seed oils (moringa, macadamia, starflower, papaya seed, etc)

  7. AAC – Progress (2) • Active investments • Lachlan (Kenya) Nairobi, Kenya (Q/E) profit-participating loan to fast-growing supplier of agro-chemicals, including micro-nutrient fertilisers, to east African farmers – particular focus on repackaging generic products and development of smallholder sector • Sandstorm International, Nairobi, Kenya (E) Expansion finance to leather/canvas luxury goods manufacturer • NASECO, Uganda (Q/E) Finance to increase production capacity and seed storage and increase marketing and distribution spend.

  8. AAC – Progress (3) • Active investments • Biyinzika Enterprises, Mukono, Uganda (L) Expansion finance to enable second largest producer of day-old chicks to move into large scale broiler production (NB, Company is also a major miller and producer of feeds) • Victoria Seed Company, Uganda (Q/E) Finance to enable expansion into production, packaging and distribution business • Coetzee Natural Products, Uganda (Q/E) producer and exporter of organic agricultural produce.

  9. AAC – Progress (3) • Comments on deals • Debt and quasi-equity instruments preferred by Investees • Total invested funds are $5m • Average deal size is about $500,000 • Expected gross US$ return on current portfolio 12% +/- 1% • Bias towards Kenya, reflecting greater depth of private sector • Strong spread of investments throughout agriculture value chain

  10. Challenges • Governance • Deal sourcing • Donor influence

  11. Thank Youemail:patrick.ndagu@aac.co.kewww.aac.co.ke

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