Cofco buys Noble agricultural unit to broaden food supply

Purchase of agricultural business is the second such deal for Cofco, which in February agreed to buy a majority stake in grain trader Nidera

PUBLISHED : Thursday, 03 April, 2014, 5:16am
UPDATED : Thursday, 03 April, 2014, 6:52am

Cofco Corp, China's largest grain trader, agreed to make an initial payment of US$1.5 billion for 51 per cent of Noble Group's agricultural products trading unit to broaden its access to food supplies abroad.

The purchase highlights China's push to secure more food overseas as it juggles scarce farming resources at home against a dependence on imports. It is the second such deal for Cofco this year after it agreed to buy a majority stake in Dutch grain trader Nidera in February.

"China's increasing appetite on agri-product imports are pushing forward the overseas acquisitions by Chinese companies," Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant said before the deal was announced.

The deal creates a venture that will be Cofco's principle base for sourcing food materials internationally, according to a statement from Hong Kong-based Noble, Asia's biggest commodity trader by sales. It will integrate with the food raw material processing assets owned by Cofco, Noble said.

Agri-product imports are pushing forward the overseas acquisitions
Ma Wenfeng, analyst

Cofco will share the investment with an international group led by Hopu Investment, a private equity fund. Hopu was set up by Fang Fenglei, the chairman of Goldman Sachs's Chinese securities venture. Noble's chief executive Yusuf Alireza, who will head the operation on an interim basis, joined the Hong Kong trader from Goldman Sachs in 2012.

JP Morgan Chase is acting as Noble's sole financial adviser.

Noble counts China's sovereign fund, China Investment Corp, as its second-largest shareholder with a 14.1 per cent stake, according to data compiled by Bloomberg.

The price of the deal will be equal to 1.15 times the audited book value of the 51 per cent stake in the unit and the initial payment of US$1.5 billion will be adjusted to reflect that ratio, Noble said. The unit also carries US$2.5 billion of debt, it said.

With Nidera, which has annual sales of more than US$17 billion, Cofco has "strong platforms" for procuring grain in Brazil, Argentina and central Europe, it said on February 28. The deal valued Nidera at about US$4 billion including debt, a person with knowledge of the matter said at the time.

Noble's agribusiness, the smallest of its three units, includes sugar mills in Brazil, grain elevators in Argentina, and oilseeds crushing plants in China, Ukraine, South Africa, and South America.

The unit has a potential enterprise value of about US$3.5 billion, Tanuj Shori, an analyst at Nomura Holdings said.

Weighed down by low sugar prices and weak oilseeds crushing margins, the agribusiness unit dragged on Noble's earnings. The commodity trader booked an operating loss at the division in 2013, contributing to a 48 per cent drop in full-year profit. The company's biggest division by operating income is its energy unit, followed by its metals business.

China is considering cutting the ratio of the nation's total food crop relative to consumption to 80 per cent from 95 per cent, meaning it would allow more imports, two sources said in January. The annual agricultural policy statement is still under review.