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18 August 2023

Agriterra Limited ('Agriterra' or the 'Company')

Agriterra Limited / Ticker: AGTA / Index: AIM / Sector: Agriculture

New Trade Finance Package, Operational Restructure and Related Party Transaction

Agriterra Limited, the AIM-quoted African agricultural company, is pleased to announce that it has concluded a trade finance package with Magister Investments Limited ("Magister"), the Company's 50.58 per cent. shareholder, which will:

·    significantly reduce the finance costs associated with maize purchasing in Mozambique by the Company's wholly owned subsidiary, Desenvolvemento E Comercializacao Agricola, Limitada ("DECA");

·    facilitate the purchase by DECA of various capital equipment which will be employed by its operations in Mozambique to drive growth through accessing new revenue streams and improving operational efficiencies; and

·    enable the group to replace the external finance provided by First Capital Bank, S.A. announced on 14 June 2023.

In addition, the Company announces that it has implemented a significant operational cost savings restructure within its Mozambique subsidiaries DECA, Compagri, Limitada and Mozbife, Limitada (together the "OpCos").

Caroline Havers, Executive Chair, said: "The purchasing aspect of our maize treatment and processing operations in DECA have typically been financed by local external lending. By securing finance from Magister to purchase maize, we will significantly reduce our purchasing costs and position DECA to generate strong revenues from its maize meal sales, during the selling season. In addition, the new financing will assist in the acquisition of new capital equipment by DECA and will support ongoing efforts to diversify our product and revenue streams. This will allow us to access local informal markets, as we seek to solidify our base of operations. We thank Magister for their continued support in providing this new financing, which demonstrates their ongoing commitment to our business and shareholder base.

After a period of assessment we have implemented a strategic restructuring to reduce expenses, maximise efficiencies and improve profitability at our operations in Mozambique. We are disappointed to have had to reduce our local workforce so dramatically, but felt that this was the only responsible way to move forwards in the current economic conditions. We have ensured that all of those whose employment has ceased have received their full terminal benefits, in accordance with Mozambique law and thank everyone for their hard work to date."

Summary of Key Terms

Agriterra has today secured new debt funding from its majority shareholder, Magister, in an aggregate amount of US$2.9m together with an extension to the US$1.8m convertible loan facility provided by Magister (the "2022 CLA") as announced on 29 July 2022 (together the "Trade Finance Package"). 

The Trade Finance Package comprises:

Ø an unsecured facility of US$2m to facilitate onward funding to DECA to finance grain purchasing in Mozambique without relying on local bank overdraft facilities, which are typically more expensive (the "Maize Facility");  

Ø an unsecured facility of US$900k to facilitate the acquisition by DECA of capital equipment (the "Asset Facility", including an automatic biscuit making & baking plant, 1kg & 5kg packing machines, a vertical packing machine for sugar/salt/rice/beans and a FAW 28.380FT truck & 13.5m Tri-Axle Tautliner semi-trailer, the "Financed Equipment"); and  

Ø amendments to the 2022 CLA to extend the term and update the interest provisions (the "CLA Amendment").

Agriterra has also carried out a significant operational cost saving exercise, resulting in a 39% reduction in OpCos staffing, along with new operational strategies designed to ensure no significant loss in productivity (the "Mozambique Restructure").

Management anticipates that the Mozambique Restructure and the Trade Finance Package will favourably position DECA to buy maize at competitive prices and improve maize meal production during the next trading period. Further, the Financed Equipment will provide access to additional revenue streams and improve operational efficiencies.

The material terms of the Trade Finance Package are as follows:

Maize Facility

·    Duration of 12 (twelve) months, with principal and interest (as described below) due at the end of the term, to the extent not converted (as described below), subject to extension by a further 12 (twelve) months (on one or more occasions) by notice in writing provided by Magister to the Company at any time prior to the maturity.

·    Magister will have the right on one or more occasions to convert all or part of the loan then outstanding (plus a pro-rated amount of accrued interest) into new ordinary shares in the capital of the Company at the prevailing 10-day VWAP on the date on which notice of exercise of conversion rights is given to AGTA, subject to all applicable laws and regulations.

·    Interest will be charged on this facility at the rate of SOFR (at the start of each 12 (twelve) month period, if applicable) + 6% per annum (or part thereof, if applicable), on a daily basis, be compounded quarterly and paid in full on the maturity date.

·    No arrangement fees are payable.

·    Upon the occurrence of an event of default, Magister may (the "Magister Recovery Rights"):

Ø declare that the loan (and all accrued interest and all other amounts accrued or outstanding) is immediately due and payable; and/or

Ø at its election, require the Company, using its best endeavours to ensure that any/all necessary approvals, waivers, consents or similar/equivalent are obtained, to take all steps necessary to issue new ordinary shares in the capital of the Company to Magister, equal in value to the loan then outstanding plus interest calculated at 12% per annum from the date of the Loan at the 5 day VWAP over the 5 (five) trading days prior to the occurrence of the event of default.

Asset Facility

·    Maturity date of 31 March 2026 (subject to extension by a further 12 (twelve) months (on one or more occasions) by notice in writing provided by Magister to the Company at any time prior to the maturity)

·    After a grace period up to 31 March 2024, the Asset Facility will be repaid in equal quarterly tranches ensuring repayment in full on or before maturity.

·    Interest will be charged on this facility at the rate of SOFR (at the start of each 12 (twelve) month period, if applicable) + 6% per annum (or part thereof, if applicable), on a daily basis, be compounded quarterly and paid in full on or before the maturity date.

·    No arrangement fees are payable.

·    Upon the occurrence of an event of default Magister will be entitled to exercise the Magister Recovery Rights.

CLA Amendment

Magister and the Company agree to various amendments to the 2022 CLA as follows:

·    A change to the definition of the "maturity date" to extend the term for a further 12 (twelve) months and to provide for extension by a further 12 (twelve) months (on one or more occasions) by notice in writing provided by Magister to the Company at any time prior to the maturity.

·    Changes to the interest charging provisions to the effect that the interest rate is re-set upon each extension to the prevailing SOFR at extension, + 6 % per annum.

·    Changes to the "restitution amount" (i.e. applicable upon an event of default) so that the interest rate applied in such circumstances is increased to 12%, so as to reflect the prevailing worldwide economic conditions and increased interest costs.

The material aspects of the Mozambique Restructure are as follows:

·    A broad restructuring plan has been implemented to improve profitability of the OpCos generally.

·    Reduction in the total number of staff as well as certain other operating expenses.

·    A total of 123 out of 312 employees have been retrenched, the financial impact of which is a reduction of:

Ø payroll costs of US$44k (approx.) per month; and  

Ø other operating expenses of US$19k (approx.) per month.

·    Overall anticipated reduction in operating expenses of OpCos by US$625k (approx.) per year (net of retrenchment costs of US$131k (approx.) which are planned to be paid over 4-6 months).

Related Party Transaction

Entering into the Trade Finance Package, along with the CLA Amendment constitutes a related party transaction under Rule 13 of AIM Rules. In this context, Caroline Havers, Neil Clayton and Sergio Zandamela (being the Directors on the Board who are considered to be independent of Magister) consider, having consulted with the Company's Nominated Adviser, Strand Hanson Limited, that the terms of the Trade Finance Package are fair and reasonable insofar as its shareholders are concerned.