The AAF fund's exit from Feronia marks the end of AFD Group's indirect participation in the company

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Proparco | 8 April 2021

The AAF fund's exit from Feronia marks the end of AFD Group's indirect participation in the company 
 
In November 2020, following a restructuring and sale process, Feronia sold all its shares in Plantations et Huileries du Congo (PHC) to the Straight KKM2 (KKM) fund.
 
Consequently, the AAF fund, whose minority shareholding stood at 13.5% of the capital, is no longer a shareholder of PHC in the Democratic Republic of Congo. AFD Group, an investor in AAF, no longer has any connection with PHC - Feronia.
 
Reminder of AFD Group’s investment in the AAF fund
 
In 2010, AFD Group invested USD 40m in the AAF fund, an investment fund dedicated to supporting companies in the agriculture and agro-industrial sectors in Sub-Saharan Africa. Under this investment, Proparco (as well as other investors in the fund) delegates the management of its investment to the AAF team, ensuring that the human resources, mechanism and procedures of this manager meet the highest standards of development banks (E&S, governance, etc.). 
 
In 2012, this fund invested some USD 30m in Feronia, thereby becoming a 13.54% shareholder in the company. This initial investment was the only investment by the AAF fund in Feronia, paid in several tranches. The fund has never reinvested in Feronia.

The AAF fund has also invested in about a dozen other companies in Africa.

AFD Group did not have a direct relationship as a lender or investor in Feronia. However, it has paid close attention to the diligent supervision of its investment in Feronia by the AAF fund. 
 
The acquisition of all Feronia’s shares in PHC by the KKM fund in 2020 puts an end to AAF’s investment in Feronia. As an indirect investor, AFD Group has not been involved in the transfer process. 
 
Reminder of Feronia’s activities 
 
Since 2009, Feronia was a lessee of 107,000 hectares of oil palm plantations owned by the Congolese State (DRC). The company rehabilitated 25,000 of these 107,000 hectares. Outside these 25,000 hectares exploited by Feronia, the concession land comprises conservation areas, infrastructure and land used by local communities.
 
Several tens of thousands of people work on these plantations and over 100,000 people rely on oil palm exploitation and the related education, water and sanitation facilities. 
 
The objectives of Feronia’s lenders and investors, including the AAF fund, are to support the rehabilitation of the plantations, which had fallen into disuse when they were taken over by Feronia, develop employment in remote rural regions, improve living conditions for people and meet strong local demand for palm oil, in a context of severe food insecurity in the region.
 
The support from its lenders and investors has allowed Feronia to make substantial investments over the past decade to carry out this rehabilitation work and implement an ambitious environmental and social action plan. Through this action plan, these investments have also led to the construction of health centers, wells, schools, housing and the rehabilitation of roads for local communities.
 
In terms of the E&S plan and support to communities, despite regular significant improvements, difficulties remain and a lot of progress still needs to be made to improve the living and working conditions of these communities. These difficulties have been continuously monitored by Feronia’s lenders and investors, including AAF. 
 
AFD Group has paid much attention to the work carried out by the fund manager AAF, in particular to ensure, alongside the lenders, that it conducts a rigorous and regular monitoring of the implementation of the environmental and social action plan and that it makes sure that the concerns of communities and civil society are addressed by Feronia. The AAF fund was constantly involved in the resolution of these issues until the takeover of PHC’s activities by KKM in 2020.
 
The future of Plantations et Huileries du Congo (PHC)
 
The takeover of Feronia’s activities by the KKM fund marks a new stage in the long, complex but essential process to rehabilitate the plantations to ensure their sustainability. 
 
KKM was one of Feronia’s main shareholders prior to acquiring all the shares. It is therefore very familiar with the project and its issues. In the context of the takeover of Feronia’s activities, the fund has committed to making substantial reinvestments in the plantations in order to continue the ongoing work.
 
KKM has also committed to implement an environmental and social action plan. It sets out the measures that will be taken to (i) build the environmental, social and governance capacities of PHC, (ii) work in partnership with local communities, (iii) maintain and improve environmental standards and (iv) seek solutions to improve the remuneration and working conditions of workers (a summary of this action plan can be consulted on the PHC website). 
 
Our European counterparts continue to be involved in the project with their financing activity and will be vigilant regarding the implementation of these commitments.
 
While AFD Group is no longer related to the project, it will continue to pay close attention following the mediation work implemented by a panel of independent experts.
Original source: Proparco
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