Bloomberg
China plans new Cofco merger and IPO food trade giant
(Bloomberg) – China’s largest food company plans to merge its international trade division with several domestic companies to create a new agricultural commodities giant before embarking on an initial public offering. CFCO Corp. has hired bankers to advise on a plan to combine Cofco International Ltd. with some of its domestic trade and processing assets, according to people familiar with the negotiations. After the merger, Cofco plans to sell shares in the new company, probably in Shanghai, people said, asking not to be named because the matter is private. The IPO can value the new company at more than $ 5 billion, people said. The combination will create a new agricultural trade giant, placing Cofco’s international trade unit and some of its domestic businesses under the same umbrella, with assets ranging from Brazil to China, people said. The new company will compete with so-called ABCDs, a quartet of global traders who have dominated the industry for decades: Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Co. to raise more funds that will help boost the growth of the company’s domestic and overseas businesses, said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Co. “Money is needed to expand resources abroad because part of a state-owned company’s role is to ensure the country’s food security,” he said. Ma. China, the world’s largest commodity buyer, has helped raise food prices over the past 12 months, with record purchases of corn and other crops. The new commercial colossus will help protect major food supply chains and provide Beijing with another geopolitical tool in global trade. The plan comes after Cofco International, based in Geneva, also known as CIL, recorded record profits due to volatile agricultural markets. The overseas commercial enterprise struggled for several years to make money, but by 2020 the profit before tax rose to about $ 350 million, one of the people said. The results have not been audited and may change. A spokesman for Cofco International in Geneva declined to comment. There was no response to an e-mail sent to the headquarters of Cofco Corp. in Beijing. Minority Investors The IPO will allow CIL minority shareholders, including Chinese private equity investor Hopu, state-owned China Investment Corp., Singapore’s state investment agency Temasek and a World Bank agency, to monetize their investments. External investors currently own around 49% of CIL, with Cofco controlling the rest. The merger is expected to close this year with the potential IPO planned for late 2021 or early 2022, people said. Still, the merger structure has not been finalized and the IPO plan depends on investor appetite and commodity prices, they said. Investment bankers, including a bank in China, were given a dual mandate to advise on the plan to merge Cofco’s assets and then prepare the IPO, people said. With the merger, Cofco will combine the market knowledge of its international trade venture, which is one of the largest soy exporters in South America, with its domestic assets that trade and process agricultural commodities in China. In effect, it will connect farmers around the world directly with China’s biggest consumers. The cofco had a major impact in 2014, paying more than $ 4 billion to purchase agricultural marketing assets from Noble Group Ltd. and Dutch grain trader Nidera BV. However, the acquisitions caused major headaches for the Chinese company, overloading it with business-related debt and financial losses. (Updates with analyst comments in the fourth paragraph) For more articles like this, visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source. © 2021 Bloomberg LP