IFC exits Cargills Food investment via ‘put’ option

IFC, a member of the World Bank Group, has decided to pull out from the investment made in Cargills Food Processing Company (Pvt.) Ltd (CFC), a subsidiary of Cargills (Ceylon) PLC (CCP).

In a filing to the Colombo Stock Exchange (CSE) yesterday, CCP announced that IFC had informed its decision to exit by enforcing a ‘put’ option. 

The board of CCP had resolved to accept the ‘Exit Notice’ issued by IFC, at a meeting held on June 29, 2020.

The put liability of the transaction was estimated at Rs.3.16 billion, as at December 31, 2019. 

On February 25, 2015, IFC subscribed for 4,130,424 shares of CFC, representing 8 percent shares of the company, for an aggregate subscription price of Rs.2.55 billion (US $ 20 million). IFC was considered the investor of CFC and non-controlling interest to CCP, where the latter acts as the grantor/sponsor to the contract. 

CCP had granted IFC the ‘put’ option to sell its shares to CCP during the put period on up to three occasions at the Put Price. 

The price, which is calculated as of the date of settlement of purchase of the relevant Put shares by the grantor, provides IFC an IRR of 9 percent in local currency term.

CCP entered into an agreement with IFC on August 25, 2014, for an equity investment by IFC into CFC.

CFC carries out the retail operations of the Cargills group, including Food City and Food City Express supermarket chains. 

The group’s other operations such as the FMCG sector, including dairy, restaurants and investments into banking and property, remain with CCP. 

CCP reported earnings per share (EPS) of Rs.3.99 for the quarter ended March 31, 2020 (4Q20), up from Rs.1.70 per share in the corresponding quarter of the previous year, amid strong earnings reported in core retail and FMCG sectors. 

For FY20, Cargills EPS improved to Rs.10.47, from Rs.7.70 in FY19.