UAE stock high-flier IHC takes on a new challenge in Sudan
Company will have to make its investments and skills do the talking in that country
The benchmark UAE indices were virtually unchanged, with DFM closing Tuesday (October 6) up by 0.03 per cent while ADX remained in the red by 0.11 per cent.
IHC (International Holdings Company) continues its investment spree, with the group now planning a $225 million, five-year investment in Sundan's agriculture sector. The move is in a joint venture with DAL group, Sudan’s largest private sector conglomerate.
The investment will see development of over 100,000 acres into farmland and is projected to have an annual output of over 400,000 metric tons of agricultural crops. The output will generate $1 billion in export revenues over a period of 10 years for Sudan.
The $225 million investment is certainly a major one for IHC, and it seems to be timed well. Three major rebel groups recently signed a peace agreement with the Sudan government, raising hopes for restoration of peace. Nearly 300,000 people have been killed and around 2.5 million people have been displaced in the internal strife.
Bring in new skills
From a business perspective, IHC’s move will help strengthen the food integration strategy and will enable it to implement a farm-to-fork business model. In the long term, it will enhance profit margins since the group will be able to source its own food products and sell them through the retail divisions.
Also, aiding profit margins are access to fertile land, low labor costs, and updated agricultural practices which are expected to be implemented on the operational side. Nevertheless, for investors, already on a ride of their life with the IHC stock, the new investment does add risk from a geographical perspective. Any rupturing of the recent peace deal will be problematic.
The group will also be required to summon all its capabilities to make this venture successful. For sure, this is uncharted territory for IHC, which has done a spate of acquisitions in the last one year. There is famous quote from Will Rogers which says that, “The farmer has to be an optimist or he wouldn’t still be a farmer.” Likewise, an IHC shareholder will have to be a born risk taker or he shouldn’t be in IHC.
Among other news, Abu Dhabi’s state-owned investor Senaat will be increasing it’s stake in food producer, Agthia Group, from 51 per cent to 59.17 per cent after an M&A Deal. A majority of assets of Al Foah, the largest date receiving and processing business in the world, will be transferred to Agthia.
The transaction will result in the creation of a Top 10 F&B company in the MENA region and is in line with the Abu Dhabi government strategy to create national champions in different sectors.
- Vijay Valecha is Chief Investment Officer at Century Financial.