Cofco begins US$200m spin-off
China's largest producer of edible oils will list agri-business under a HK incorporated name, China Agri Holdings
Cofco International, controlled by state-owned China National Cereals, Oils and Foodstuffs Corp, plans to launch as early as next month the US$200 million spin-off of its agri-business subsidiary, market sources said.
The spin-off unit, China Agri Holdings, will have interests in biofuels and biochemicals, oilseed and wheat processing, and rice trading.
'The key attraction is the biofuels,' said Simon Cheng, an analyst at BNP Paribas Securities. 'The industry in the mainland is like a black box because there isn't much information publicly available, but there's strong government support and if you look at rising oil prices and power shortages, that support is understandable.'
Goldman Sachs and Bank of China International were hired to arrange the sale.
Cofco International, in a statement to the Hong Kong stock exchange yesterday, said that due to 'certain additional PRC regulatory requirements' the listed company would be incorporated in Hong Kong. The company said it sold 2.8 million shares to China Agri Holdings, a wholly owned Hong Kong incorporated subsidiary.
The spin-off will break the edible oil business into a consumer side, run by China Foods, and an oilseed processing business run by China Agri.
After the spin-off, Cofco International plans to change its name to China Foods to reflect a greater emphasis on its consumer business.
Zeno Tse Sze-ming, an analyst at China Everbright Research in Hong Kong, had previously estimated that China Agri would be priced at about 10 times earnings, compared with 20 times earnings for Cofco International.
Cofco International is the mainland's largest producer of edible oils and soybean meal which together contribute 27 per cent of its profit. It also has interests in food and beverages, winemaking and confectionery.
Cofco International raised HK$694 million in a secondary share placement in November.
The company's shares have risen 6.7 per cent this year and closed at HK$8.39 yesterday. The benchmark Hang Seng Index is down 3 per cent this year by comparison.
Cofco International's parent company plans to expand its ethanol capacity to five million tonnes by 2010 from the current one million tonnes.
The company started construction in October on an ethanol plant that will use cassava roots to produce fuel. The company's other plants use corn.
At the time, Cofco said it planned to invest one billion yuan in alternative fuels, without saying how much the cassava plant would cost.
Cofco has stakes in two ethanol companies that can produce a combined total of 180,000 tonnes of the fuel annually.
The company also owns stakes in two plants under construction that will produce 500,000 tonnes of ethanol a year.