Alterra on verge of carbon demerger

Shareholders in WA agribusiness player Alterra are just one step away from receiving an unexpected direct income stream from the company’s carbon forestry business.

The Alterra board recently decided to demerge the carbon arm from the business, placing it and its solid stream of income in the hands of individual Alterra shareholders.

Alterra said this week it had transferred all of its forestry and carbon assets into its subsidiary company, Carbon Conscious Investments, in order to prepare for them to be transferred into the hands of individual Alterra shareholders, subject to their approval.

In an update to the market, Alterra said all of its agreements with key customers, Origin and BP, had been executed and all internal transfer of assets from Alterra to Carbon Conscious Investments had been completed.

Alterra was an early mover in the race to get ahead of the expected carbon Emissions Trading Scheme that never fully eventuated due to political uncertainty. The company was successful however in landing two quite lucrative long term contracts to grow trees, mostly on unproductive farming land, for conversion to carbon credits in the hands of Origin and BP.

Those contracts are ongoing and produce a solid income stream which will now be transferred to individual Alterra shareholders, potentially providing something of a Xmas windfall for them if Alterra’s share price holds up post the demerger.

Alterra will still hold a quality patch of freehold farming land north of Perth and a bag of cash that it has accumulated, $2.4m at last report, after the demerger.

The company is pushing ahead with its demerger plans in order to focus on developing its other agribusiness opportunities.

These include the development of W.A’s first “system 5” dairy on its Dambadgee Springs property near Dandaragan, a dairy business in Queensland and other horticulture ventures.

The company also confirmed it had received advice from the Australian Taxation Office, confirming that Alterra shareholders would likely receive “demerger relief” for income tax purposes if the demerger was approved.

The final step to allow Alterra’s demerger of its carbon forestry business is for majority shareholder approval at the upcoming extraordinary general meeting to be held in Perth on 20 December 2018.

Alterra Managing Director Andrew McBain said: “Shareholders want to see us create new business, but because of the political uncertainty, there is a lack of opportunities to do new business in carbon,”

 “The demerger quarantines the existing business, retains our expertise in the carbon space, maintains obligations to clients, and provides an opportunity for Alterra, post demerger, to be free to take on new projects without risking the legacy business.”

Taking a leaf out of the recent Coles/Wesfarmers demerger, Alterra will distribute 85% of shares in Carbon Conscious Investments directly to its shareholders, with the ASX-listed entity retaining a 15% stake in the carbon credit generating forestry business. Alterra will continue to manage the carbon business under contract.

The carbon forestry business is expected to generate revenues of approximately $21 million between 1 January 2019 and 30 September 2027 however, the Board of Alterra believes the value of the carbon forestry business is not reflected in Alterra’s market capitalisation.

“The demerger would provide shareholders with the opportunity to retain exposure to the cash flows associated with the carbon forestry business, while maintaining their investment exposure to Alterra and any new agribusiness opportunities,” Mr Bain said.

Carbon Conscious Investments will look to distribute 90% of its net profits after tax to shareholders, making it simply a cash generating dividend paying vehicle.

Alterra management said a large number of shareholders had been in contact to say they were supportive of the demerger proposal which is also unanimously supportred by Alterra’s board.