China’s food processing giant COFCO offers to acquire Agri-Industries Holdings for US$1.1bn

CHINA – State-owned food processing holding company, COFCO has unveiled plans of privatizing its Hong Kong listed unit, China Agri-Industries Holdings as it looks to pursue a flexible development strategy.

COFCO has tabled a HK$8.9 billion (US$1.1 billion) bid to take the company private by offering to buy an additional 34% stake in the company. COFCO already controls 60.75 per cent stake in China Agri.

COFCO, China’s largest food processor tasked by the government to enhance the nation’s food security, said that the takeover bid will enhance the comprehensive consolidation and integration of China Agri’s operations.

In addition, China Agri said in a filing to Hong Kong stock exchange that the deal will offer more flexibility and higher efficiency in supporting the long-term business development of both companies.

The privatisation of China Agri, a major processor and trader of oilseeds, rice, wheat and malt, comes as the US-China trade war and global economic slowdown has depressed its shares’ value.

“The slowdown of global economic growth, trade tensions and heightening of geopolitical risks have resulted in the underperformance of the company,” China Agri said in the statement.

“The ability of the company to raise funds from the capital markets has come under a certain degree of restriction.”

China Agri posted a 40.2 per cent year on year decline in net profit to HK$448.8 million (US$57 million) in the first half of the current financial year’s, even as revenue grew 27 per cent.

The fall was largely due to a profit margin squeeze in its mainstay oilseeds processing business on the back of poor demand for soybean meal used by the animal feed industry as a severe Africa swine fever epidemic rages on in China.

Last year, COFCO generated about 55% of its revenues from global commodities supply chain management, while 28% was from the sale of agriculture products.

China, the world’s biggest soybean importer, has cut off purchases from the US last year by slapping tariffs of 25 per cent tariff, sending prices tumbling.

According to a South China report, purchases of soybeans are likely to form a key part of the US-China trade deal being negotiated.

COFCO also owns stakes in five Hong Kong-listed and one Shenzhen-listed firms, spanning agricultural products trading and processing, manufacturing and packaging of branded consumer food, logistics and storage.