Hong Kong-listed Cofco International has hired Goldman Sachs and Bank of China International to arrange the US$200 million spin-off of an agri-business subsidiary next year, market sources said. The spin-off, China Agri Group, will have interests in biofuels and biochemicals, oilseed and wheat processing, and rice trading. 'In the long run, the most important business for China Agri will be the biofuel and biochemical business, which is a sector still tightly controlled by the government,' said Wendy Huang Yong, head of China research at SinoPac Securities. 'As a state-owned company, Cofco has a unique advantage.' Cofco International, controlled by state-owned China National Cereals, Oils and Foodstuffs Corp, is awaiting approval for the spin-off from the Hong Kong stock exchange. In an announcement early this month, Cofco International said China Agri could enlarge its share capital by up to 20 per cent with a sale of new shares before it proceeds with an initial public offering. Ms Huang said the spin-off and the new share offering would not be the end of the state-owned company's reorganisation. 'There will be more injection of assets into [Cofco International and China Agri Group] from the parent,' she said. After the spin-off, Cofco International plans to change its name to China Foods to reflect a greater emphasis on its consumer business. 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, wine-making and confectionery. 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. 'Most of the profit in the edible oil business comes from the consumer side,' Ms Huang said. 'After the spin-off, China Foods will be sure to have a higher price-to-earnings ratio than China Agri. Generally speaking, consumer-related businesses receive higher valuations than biochemical companies.' Zeno Tse Sze-ming, an analyst at China Everbright Research in Hong Kong, estimated that China Agri would be priced at about 10 times earnings, compared with 20 times earnings for China Foods. Ms Huang said China Agri might gain a higher valuation once several ethanol projects are completed in the next few years. Cofco International trades at 22 times forecast earnings for next year. China Agri will issue an aggregate one billion China Agri shares to Cofco International, which owns the firm, as consideration of the transfer.