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Twist to the woods and trees story.

Dubai: Have you ever wondered how much money is involved in the odours of the Middle East? I'm not talking about imported Chanel No 5, but the local "Arabic" odour of Agarwood.

According to Brent Clegg, Director of Touchwood the "local" Agarwood industry is "whopping" and his output of tress farmed in Thailand will be targeting the Arabian market. "It's both an interesting and green story including a turn from a deforestation pattern in parts of Thailand towards a forestation pattern and a boon to local villagers benefiting from employment," he said.

What's the catch? "Well I would call it a Private Equity deal and therein lie the usual disclaimers: seek independent legal advice and understand the risk. However, because it is an unregulated agricultural investment it might not attract regulators' attention in some parts where trees are not considered to be 'securities'."

Still, like any investment purchase caveat emptor applies (let the buyer beware). From an investment angle, Clegg says that Touchwood targets "10 per cent of portfolios and 20 per cent annual returns".

The story is interesting. Touchwood buys or leases forests in Sri Lanka, Australia and Thailand. The "Agarwood" trees come from Thai produce. The Sri Lankan forests have just produced their first Vanilla crop and sold it on the local Sri Lankan market at a 20 per cent annual return according to Clegg.

Although Clegg's view is that because of local currency issues the Sri Lankan investments are only of appeal to Sri Lankans. No other crop has produced a return yet as the company was only formed in 1999.

Other options

The tree stock consists of: Agarwood, the world's most expensive resinous wood. Touchwood has pat-ented a process supported by Dr Robert Blanchette and Dr Joel Jurgens, both of the University of Minnesota. Their process amounts to the injection of a serum into the Aquilaria Tree after three years of its life and over the following three years it produces Agarwood. The main markets for it are the Arabian peninsula for perfumes and China for herbal medicines.

The other trees being farmed include: Mahogany, Sandalwood and Vanilla. Obviously, the trees grow at different paces: Agarwood has a 6 year cycle; the Australian hardwoods 14 years, Sri Lankan Hardwood 14 years, Mahogany 18 years and Vanilla anywhere above 6 years.

Back to the Agarwood. Local readers might wish to know that the Aquilaria Tree is grown on land sold to Touchwood by the Thai government. Although foreigners, apparently, do not have that many buyers' rights in Thailand for property and real estate, the laws are not as restrictive for agricultural use.

Roscue Maloney, a Sri Lankan, and founder of Touchwood, has pieced together some interesting land package deals and now uses the land to plant the Aquilaria Tree. Investors buy trees, not land. So, land price movements are irrelevant to the investment. Proceeds will depend on the produce.

What about elephants rampaging through your trees, I hear you asking. Clegg states that the offering includes a "replacement factor" as Touchwood plants an extra 10 per cent to cover such contingencies.

Your trees will cost you a minimum $5,000, whilst one acre would cost $40,000. The expectation is that one acre would grow 960 trees. Many would say that the "green story" behind the investment is its most compelling argument.

That argument, as explained in their brochure, is one of "supporting biodiversity, restoring the ecological balance, recycling carbon dioxide into oxygen, reducing deforestation, helping in maintaining the rain cycle" all building towards their big crescendo of: "People -Planet-Profit" their by-word for "supporting life on earth". It all sounds ethically correct. However, for investors, the most important points to remember are that if the Arabian peninsula reduces its demand for the Agarwood fragrance, the market t would fall and your tree might not be worth its 20 per cent per annum. Supply and demand will of course ultimately dictate return and viability.

- The writer is chairman of Mondial Financial Partners.

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Publication:Gulf News (United Arab Emirates)
Date:Jun 15, 2008
Words:681
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