McCullough Robertson partner Sean Robertson talks to Brisbane Legal about a recent transaction that saw three unlisted agricultural funds combined and listed on the ASX.

How did the transaction come about?

The combined three unlisted agricultural funds hold 663ha of premium vineyards leased to Treasury Wines Estates Limited, 154 chicken growing sheds with chicken growing contracts with Baiada and 1221ha of almond orchards leased to Select Harvests Limited.   

The client had been discussing liquidity options with investors over an extended period.  Most investors were not seeking an immediate exit, though many had been invested for more than 10 years, but were concerned that at some time in the future an exit would be sought. Whilst the funds remained unlisted, this was problematic.

What were the challenges involved in combining the funds and then listing on the ASX?

The main challenge was dealing with investors from three different agriculture funds and their differing perceptions of value. 

The merger was also subject to unsuccessful attempts at a takeover offer to remove the fund manager and stop the merger through litigation. These challenges were unsuccessful because the vast majority of investors and their advisers were strongly supportive of the proposal. The combined fund listed as Rural Funds Group (ASX: RFF) on the ASX on February 14.

How was the final completion of the transaction rewarding?

The staff of the fund manager undertook a very long and comprehensive engagement with investors and their advisers before proceeding.

Whilst the transaction had the overwhelming support of the majority of investors, a minority of investors attempted through a range of mechanisms to derail the transaction, to the detriment of the majority, but were ultimately unsuccessful. This made the final transaction very rewarding.

How has Rural Funds Group been received by the market?

Rural Funds Management Limited is very happy with the result.  Because the listing was a compliance listing, which means no additional funds were raised as part of the listing, the transaction was achieved with minimal broker support.

The units are trading at a small discount to net asset value, notwithstanding a number of investors were seeking an exit.  There is depth in the market, both buyers and sellers, with units trading daily and RFF now has one institutional investor who entered the market and picked up almost 8 per cent of the units on issue. 

What have been the benefits for stakeholders?

The transaction was significant as the resultant trust is a real estate investment trust leasing prime agricultural real estate and assets to quality tenants.  Investors in RFF have exposure to agricultural land without the agricultural operating risk. 

RFF is the first trust of this kind to list on ASX. The resulting trust now provides liquidity for investors in an otherwise illiquid investment.

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