China Agri-Industries seeks HK$2.7b from IPO

China Agri-Industries Holdings, the mainland's largest processor of crops, aims to raise as much as HK$2.7 billion in a Hong Kong listing to fund business operations, sources said.

The company, a unit of Hong Kong-listed Cofco International, planned to sell 697 million new shares at between HK$2.78 and HK$3.90 each, representing 10.7 to 18 times its forecast earnings for next year and 2.2 to three times its book value, sources said.

'It doesn't seem to be expensive given the tremendous demand in the mainland agri-processing sector over the next five years, as well as the potential appreciation of the yuan,' a fund manager said.

'I would like to buy [China Agri] shares at around 2.4 times to 2.5 times its price to book value, about the middle of the proposed range.'

China Agri probably will benefit from the mainland's growing domestic demand with net profit rising 12 per cent to 770 million yuan this year and turnover by 21 per cent to 24 billion yuan, according to a BOC International research report sent to institutional investors.

BOC International values the firm at HK$13.3 billion to HK$14.2 billion, representing 16.6 times to 17.7 times forecast earnings this year.

The firm plans to take subscriptions from institutional investors from Monday.

The stock is expected to debut on the Hong Kong stock exchange main board on March 21.

BOC International and Goldman Sachs are handling the deal.

China Agri planned to spend most of the proceeds of the initial public offering on its two main operations - oilseed processing and its bio-fuel and biochemical businesses which together accounted for 65 per cent of the firm's net profit last year, sources said.

The company also operates three other businesses including rice-trading and processing, brewing materials and wheat processing.

According to the BOC International report, China Agri plans to build eight new projects between this year and 2009 to meet growing demand in the agro-processing segments.

The firm plans to spend HK$6.1 billion to expand its businesses over the coming two years, of which 71 per cent is earmarked for the bio-fuel and biochemical businesses.