Today it was announced that Feronia Inc, the Canadian stock market listed agribusiness in which CDC has a 41 per cent stake, had agreed to sell its equity interest in Plantations et Huileries du Congo (“PHC”) to KKM, a long-term shareholder in Feronia. PHC is Feronia’s palm oil business which operates in the DRC.
Furthermore, the company has announced that KKM has signed a term sheet setting out the terms of a proposed restructuring of PHC’s senior debt and the bridging loans made by KKM and CDC to Feronia.
PHC operates in very remote and poverty-stricken areas of the DRC, by many measures the poorest country in the world. The surrounding populations of nearly 100,000 people rely on the 109-year-old company as the sole source of employment, healthcare and infrastructure in the region.
The injection of fresh capital by KKM gives PHC it’s best opportunity to complete its journey to become a sustainable and profitable business.
Completion of the transaction is subject to a number of conditions, including court approval.
As part of the agreement:
- KKM, which has already invested US$5mn, will provide at least a further US$10mn of new capital into PHC’s operations in exchange for its increased equity stake
- Feronia Inc will eventually cease to exist on the Canadian stock market – significantly reducing the company’s administrative cost base
- The DFI group of investors (CDC, FMO, BIO and DEG) will remain as lenders to PHC
- The ongoing Independent Complaints Mechanism (ICM) mediation process, for those communities that have expressed concerns about Feronia, will continue with the support of KKM, CDC and the other DFI lenders
- ESG spending to improve working conditions, enhance the local environment and provide education and medical facilities will be maintained by KKM and be independently audited.
Since CDC’s initial investment seven years ago, PHC has been transformed from a derelict shell into a viable business. Production has increased by over 500 per cent due to the construction of two new mills at a cost of almost US$28mn and an investment of US$39mn on new trees and other agricultural improvements. Staff wages have more than doubled and around US$7mn has been spent on restoring clean water provision, healthcare and educational facilities. Although more needs to be done, the prospects for the 90,000 people in the extremely remote communities that rely on Feronia as the sole source of formal employment, have been greatly enhanced.
These improvements have been made despite the 30 per cent collapse in the price of palm oil that has significantly increased the pressure on the company’s finances and accelerated the requirement for additional capital.
In its efforts to secure PHC’s future, the Feronia Board was open to exploring all sources of capital that could be made available in a timely fashion and that were acceptable to other key stakeholders.
The transformation in PHC’s operations since 2013 has made today’s announcement possible. The company can now take advantage of a revitalised balance sheet with this significant private investment as it continues its long journey towards financial sustainability.
KKM is committed to continuing the ESG program put in place by CDC and the other DFI investors in PHC. There is an annual audit conducted by an independent E&S advisor which is commissioned by the DFI lenders which will be maintained.
CDC remains a long-term investor in PHC and looks forward to continuing to work with KKM for the benefit of the tens of thousands of people who rely on the company.
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