Development funds from European governments have helped to rescue a Cayman Islands-registered palm oil company
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ROME (Thomson Reuters Foundation) - Development funds from European governments have helped to rescue a Canadian company that pays workers as little as $1 per day to toil on some of Africa's largest palm oil plantations in the impoverished Democratic Republic of Congo (DRC).
Government-backed investment funds from Britain, France and Spain, designed to help poor countries develop, stepped in to buy 60 percent of Toronto-listed Feronia Inc for about $35 million in two separate investments in 2012 and 2013.
The investments came after shareholders fled the Cayman Islands-registered company as its share price fell about 95 percent.
Officials at the government-backed funds say this is an investment in African agriculture over the long-term, creating jobs in one of the world's poorest and most unstable countries, and they expect private investors to eventually return.
But rights groups question whether the investment in the DRC is a suitable use of public funds, with the cash propping up a loss-making company shunned by private investors that has done little to help workers, paying them about half the minimum wage.
"Workers are living in crumbling homes, in severe disrepair. There is malnutrition in the communities near the plantations," Jean Francois Mombia, a campaigner with RIAO-RDC, a non-governmental organisation that works with labourers at Feronia's operations, told the Thomson Reuters Foundation.
Devlin Kuyek, a researcher with GRAIN, a Spain-based land rights organisation following the DRC, raised similar concerns.
"(Feronia) has not brought improved working conditions on the plantations or improved living conditions for the local communities or even (brought) decent returns for the people whose money was used for the investment," Kuyek said.
Scrutiny of Feronia follows a wave of foreign investment in African farmland that has raised ethical questions about "land grabs" and led to unrest on some projects.
Badly devised investments can harm or displace local people, according to U.S.-based non-profit Landesa that works to secure land rights for the world's poorest farmers, but development agencies have in some cases backed hedge funds with projects considered ethically dubious by some activists.
"BIGGEST PLANTING IN AFRICA'S HISTORY"
Feronia was set up by Canadian hedge fund TriNorth Capital Inc and venture capitalist Ravi Sood in 2008 to buy three plantations in the DRC and is now one of the country's largest employers with more than 3,500 workers.
When Feronia and Sood initially promoted the purchase of the three DRC plantations to investors, they sold it as a potentially high yield deal in a country emerging from five years of civil war, which ended in 2003.
Memories of record-high food prices were still fresh in investors' minds and the future initially looked bright for Feronia, a company incorporated in the Cayman Islands to avoid "double taxation" in Canada and the DRC.
Through TriNorth, Sood enlisted nearly 5,000 investors to create Feronia which bought Plantations et Huileries du Congo, a set of three 100-year-old plantations, from Unilever.
To raise funds for replanting and to upgrade infrastructure, Feronia floated stock on the Toronto exchange in 2010 at C$4 a share, becoming the first African agribusiness and the first palm oil producer to list on a North American stock exchange. It raised $21.8 million after targeting a $15 million fund raising.
"We planted 5000 hectares (in one year), the size of Manhattan," Sood, Feronia CEO, said in a phone interview. "That is all manual, by hand - a staggering undertaking. It was the biggest (palm oil) planting in the history of Africa."
In 2011, Feronia raised an additional nearly $30 million from investors and at one point the firm was valued at more than $100 million, company spokesman Paul Dulieu said in an email.
After the second financing, TriNorth's ownership of Feronia was reduced to 11.8 percent, company statements show.
But the company posted losses each year and shareholders started to lose patience and left. Its share price was at C$0.56 this week after falling from a high of C$9.50 in March 2011.
Company spokesman blamed the share price fall on a drop in palm oil prices, political risk in the DRC, and a 2012 land law designed to make Congolese citizens the majority holders of land concessions.
"Investors are definitely applying a high degree of country risk at this time," Edward Hugo, an equity analyst VSA capital told the Thomson Reuters Foundation. "Investors aren't fully embracing the potential (of the DRC)."
FALL FROM GRACE
Critics, however, believe the firm oversold its potential. It posted a loss of US$10.1 million in the 2013 financial year, up from $6.7 million in 2012.
By 2013, Feronia needed new funding and attracted development agency interest in its plantations, which cover 107,000 hectares (264,000 acres) - the size of 230,000 football fields - and produce food oil exclusively for sale in the DRC.
The UK government-backed investment vehicle CDC and the African Agriculture Fund (AAF), managed by private equity fund Phatisa with backing from French and Spanish development agencies, invested $14.5 million and $19.5 million respectively.
This fitted the agencies' mission as the DRC is one of the world's poorest nations despite its resource wealth. More than 70 percent of its 68 million population live below the poverty line, the World Bank says. Average life expectancy is 50.
As of November 2013, the CDC owned 27.5 percent of Feronia, the AAF had 32.5 percent, and other investors held the rest.
Julian Lakin, equity analyst with Mirabaud Securities LLP in London, said Feronia appeared to have the lowest valuation of major African palm oil producers on a hectare basis.
Supporters of the investment believe Feronia's commitment to selling products locally is crucial for food security in the import-dependent African nation and justify the cash injections.
"The challenges are huge," Stuart Bradley, a senior partner of Phatisa, and a manager of the AAF, said in an email.
David Easton, CDC investment director, said the capital injection into Feronia shouldn't be viewed as a bailout but as a longterm investment in Africa and other investors would return.
"They need to recognise the long time horizons involved in crops like oil palm, where there is a multi-year period from planting to harvest," he told the Thomson Reuters Foundation.
The CDC has a strong track record of picking winners and its London-based officials believe the DRC investment protects the jobs of local workers by keeping the plantations working.
The CDC has, however, been criticised for routing more than two-thirds of its development investments through tax havens, according to a European Network on Debt and Development report.
Feronia has defended its Cayman Island registration, saying it pays all its taxes and paid $2.64 million in taxes to the DRC government in 2013, much-needed revenue for authorities.
But activists resent that Feronia's purchase of the plantations, partly with public funds, has not led to improved conditions for workers beyond maintaining their jobs. Most are poorly paid, often earning just over $1 a day.
Sood, Feronia's CEO, agreed that wages are "too low" but stressed it was challenging to get the company into the black.
Mombia said unions are currently negotiating with the company over wages and benefits."They are not taking care of the workers ... None of the schools (for the children of employees in the remote area) are functioning," he said.
Part of CDC's investment in Feronia is a ring-fenced $3.6 million to be invested in infrastructure but Easton said it could take a decade to upgrade and rebuild houses, clinics, schools and hospitals damaged before and during the conflict.
The DR Congo's embassy in London did not return phone calls or emails seeking comment. (Reporting by Chris Arsenault; editing by Laurie Goering and Belinda Goldsmith)
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