Grain listing in shape with COFCO, CIC venture

COFCO Corp, China's largest food company, is setting up a joint venture with sovereign wealth fund China Investment Corp, in preparation of a full listing for its recently acquired grain, oil and sugar assets.

According to an agreement signed by the two parties on Thursday, COFCO will control 80.1 percent of the venture, to be named COFCO International Holdings, while CIC will hold the remaining 19.9 percent.

COFCO, also known as China National Cereals, Oils and Foodstuffs Corp, is the country's biggest grain trader.

It acquired Dutch grain company Nidera BV and Hong Kong-based Noble Agri last year, giving it direct access to South American grain and oilseed supplies.

After the two acquisitions, its total assets were valued at $57 billion and it now has combined sales revenue of $63.3 billion. Its annual processing capacity is 84 million metric tons and annual grain volumes are around 150 million tons.

Frank Ning, chairman of COFCO Corp, told a news conference in October that it plans to spend the next three years integrating its existing businesses with Nidera and Noble Agri. It will seek an initial public offering, he said, once that integration is completed.

Yu Xubo, COFCO's president, also revealed in a recent media interview that it wished to combine all its grain, oil and sugar assets into what has turned out to be COFCO International Holdings by 2019, and float the entire business.

Noble Agri, the agri-business unit of listed Noble Group, announced on Tuesday the appointment of Matt Jansen as its chief executive. Jansen was previously senior vice-president of world's leading food company ADM's global oil-seeds business.

The cooperation with COFCO is also in line with CIC's plans.

Ding Xuedong, chairman of the wealth fund which manages over $575 billion in assets, wrote in an article last year that it planned to make more agriculture investments, including working with governments and other investment institutions.

Ding said that investing in agriculture, seen by the market as a hedge against inflation, will provide stability and diversify its risks.

The fund is also believed to be interested in the Chinese mainland agri sector, for instance in food supply, which could potentially provide it with strong returns.

Hong Kong- and Chinese-mainland-listed companies within the COFCO group responded differently on Thursday to news of the new venture.

Hong Kong-listed China Agri-Industries Holdings Ltd, Meng Niu Dairy and Joy City Property Holdings all enjoyed increases in their share prices.

But the A-share listed COFCO Tunhe and COFCO Property (Group) Co Ltd both saw their prices slip.

"The price falls of the A-share listed COFCO Corp companies were mainly a result of the entire market falling," said Xu Yan, a senior analyst with the Chinese food industry portal China Grain.

"These prices have actually been increasing since the latter half of last year, therefore, the recent share price adjustment is quite normal."

Analysts at Qilu Securities hold a positive view of the future performance of COFCO's companies, as reform of State-owned enterprises will be a major strategic investment priority this year, with more market consolidation and group integration of assets likely.