Meeting to be held on Tuesday, 14 April 2020 at 11:00am (AEST) at the offices of Rural Funds Management Limited, Level 2, 2 King Street Deakin ACT 2600.
Rationale for meeting:
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In August 2018, Unitholders approved the provision of a $75.0 million limited guarantee (Initial Guarantee) to J&F Australia Pty Ltd (J&F), a wholly owned subsidiary of RFM. The Initial Guarantee was approved with a ten-year term for which RFF is paid a monthly fee (Guarantee Fee). J&F has paid RFF the Guarantee Fee since August 2018. The FY19 annualised return to RFF on the Initial Guarantee was 10.23% (see section 4.4 of this document for further detail of historical returns).
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At the same time, RFF agreed to purchase five of JBS Australia Pty Ltd’s (JBS) Australian feedlots and lease those properties back to JBS. The Initial Guarantee allows J&F to supply JBS with cattle, feed and associated costs used to stock seven feedlots.
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Since the implementation of the arrangements between J&F and JBS (JBS Arrangements), the total cost of cattle and number of head have increased at the feedlots due to favourable market conditions. This trend is expected to continue during 2020 with increased demand internationally for JBS’s Australian beef, and a shortage of grass-fed beef due to drought. As a result of this growth in demand, JBS has requested an increase in the existing arrangements with J&F. An increase to J&F’s borrowings would require a commensurate increase in the amount of the Guarantee.
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In order to facilitate JBS’s immediate requirements, J&F will seek to increase its borrowings by $25.0 million. This increase requires an additional $7.5 million to the Initial Guarantee to be provided by RFF. However, Unitholder approval is sought to increase the Initial Guarantee by up to $25.0 million (the Additional Guarantee), to a maximum of $100.0 million (the Guarantee) to cover potential future operational requirements.
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The Additional Guarantee amount of $25.0 million is a variation to the Initial Guarantee approved by Unitholders in August 2018. As J&F is a wholly owned subsidiary of RFM, the Additional Guarantee also requires Unitholder approval under ASX Listing Rule 10.1.
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The Meetings are therefore being convened to consider the Resolution to approve the Additional Guarantee.
To view the announcement, download the attached PDF.
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