China Resources Enterprise (CRE), the state-backed retail and beer conglomerate, is evaluating options for its meat distribution unit in Hong Kong that could include a sale, said two people with knowledge of the matter.
CRE might start a strategic review of the business as early as this year, said the people, who asked not to be identified because the information is private. The company took then Hong Kong-listed Ng Fung Hong private in 2001 in a deal that valued it at HK$5.1 billion.
Analysts told the South China Morning Post that the sale would make sense for the firm.
An obvious reason is a source of funds for a potential bid for Li Ka-shing's ParknShop supermarket chain, which was put up for sale in August, with a price tag estimated at US$3 billion to US$4 billion.
Frank Lai Ni-hium, the chief financial officer of CRE, said then that the firm was mulling a joint bid for ParknShop with British retail giant Tesco, with which it has a joint-venture agreement on the mainland.
He said CRE would consider raising debt and disposing of non-core assets to fund the purchase of ParknShop, Hong Kong's biggest supermarket chain.
But analysts also point out that selling its meat distribution business in Hong Kong makes even more sense, given the backdrop of the potential opening of the beef supply market in the city.
Ng Fung Hong, started in 1951 in Hong Kong, handles all imports of live cattle from the mainland.
The Hong Kong government said in May that it was considering requests to open the import market to competition, citing concerns that "frequent" price increases by Ng Fung Hong was hurting demand for fresh beef.
The firm raised wholesale beef prices six times and imported 23,194 head of cattle last year, according to company data.
Ng Fung Hong's gross profit dropped 11 per cent last year to HK$25 million on sales of HK$396 million. The company is the major component for CRE's food division, which contributed up to 10 per cent in sales and 15 per cent in net profit to the retail conglomerate in 2012.
Vincent Tse, general manager of CRE's strategic planning and investor relations department, said he was unaware of any potential sale of Ng Fung Hong.
When CRE bought Ng Fung Hong in 2001, the company also operated businesses including supermarkets and beverages.Topics: China Resources Enterprise