A trust established for Prairie farmers following the demise of the Canadian Wheat Board has achieved full allocation.
The Farmers Equity Trust was created in 2015 as a condition of the sale of the CWB to G3 Canada Ltd.
Ten years later, the trust units have been fully allocated.
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“It is momentous,” said trust chair Kevin Augusta. “It is definitely a signpost along the way for the trust.”
The trust owns 499,000 Class B shares in G3, which were originally valued at $210.2 million.
That represented a 49.9 per cent ownership stake in the company at the time the trust was created on July 31, 2015.
These days, the ownership stake is closer to 20 per cent.
“Over time, G3 has spent a whack of money building new inland terminals and a new export terminal in Vancouver,” said Augusta.
The majority shareholders, which are Bunge Global SA and SALIC Canada Ltd., contributed all the cash for that expansion in return for additional equity in the firm.
The trust has no money to invest, so its percentage ownership in G3 has been diluted over time.
“We have a lower percentage of a bigger entity than we did on day one,” he said.
WHY IT MATTERS: Many Prairie farmers have an ownership stake in G3 Canada.
Units in the trust are issued to eligible farmers who have delivered grain to G3 and to the former wheat board. There are about 28,000 unit holders in Western Canada.
Farmers who delivered grain to the board between Aug. 1, 2013, and July 31, 2015, are eligible for units in addition to those who delivered grain to G3 after its inception on Aug. 1, 2015.
When the trust was formed, G3 estimated it would take seven to 10 years to allocate all the units.
“That’s about what it took,” said Augusta.
Units are reserved for any farmer who delivered grain and are issued to those who complete an eligibility certificate.
Are you…?
Statements are issued annually to those with reserved units, asking them to complete a certificate comprising two questions: are you a resident of Western Canada and are you a taxpayer?
However, many farmers have not completed the certificate. About half of the total allocated units are still reserved and have not yet been issued.
Augusta wishes more farmers would complete the eligibility certificate.
“Sign it and send it back. It’s not onerous,” he said.
There are no tax implications at the time the units are issued and no costs to the farmer. However, there will be a capital gain incurred once they are redeemed.
There are four ways to redeem the trust units:
- Farmers can request redemption upon reaching age 75 for units held for at least three years.
- The estate can request redemption upon the death of a unit holder. “We are receiving many, many such redemption request these days,” said Augusta.
- If the other G3 shareholders purchase the trust shares at fair market value, an option that kicked in at the end of seven years of the company’s existence. “So far, they haven’t shown any indications that they’re desirous of doing that,” he said.
- If the majority shareholders in G3 decide to sell their interest in the firm. “Our shares would get dragged along in any transaction on the same terms and conditions,” said Augusta.
Redemptions
The trust board considers redemptions once a year. Trust units are currently valued at $3.40 per unit. That number changes quarterly based on a mathematical formula.
“Sometimes we hear grumblings that farmers can’t necessarily redeem their units when they want, and that’s true,” said Augusta.
“It was never designed to be a liquid investment.”
Once a unit is redeemed, it is cancelled. They do not get reissued.
Annual redemptions these days total much more than $500,000 per year.
That could eventually prove problematic because the government originally provided $4.6 million to manage the trust, and that fund has dwindled over time.
Augusta declined to divulge how much remains in the fund. At some point, the trust will not have the means to redeem any more units, in which case they will have to issue promissory notes.
There is always the possibility that the fund could receive an injection of cash if the other G3 shareholders make an offer to purchase the trust shares or if G3 is sold to another buyer.
If that happens, the net proceeds will be distributed to all the issued units. The reserved units that belong to farmers who have not bothered to fill out their eligibility certificates will not participate in the distribution of proceeds.
“That farmer will get nothing,” said Augusta.
