April 2, 2014, 12:54 am
HONG KONG — The Cofco Corporation, a huge Chinese state-owned foodstuffs conglomerate, agreed on Wednesday to pay $1.5 billion for a majority stake in the Noble Group’s agriculture business.
The deal with the Noble Group, a major commodities trader based in Hong Kong, is the second such deal in two months for Cofco, which is going increasingly global in its quest to meet China’s demands for food security amid a shortage of arable land at home. In February, Cofco bought a 51 percent stake in the Dutch agricultural commodities trader Nidera for an undisclosed sum.
A large, growing and increasingly affluent population, worsening soil and water pollution and rising urbanization rates have combined to reduce China’s arable land and put immense pressure on the country’s ability to meet its food needs domestically.
In response, China is increasingly looking overseas. Cofco — whose businesses span grain and oilseed trading, animal husbandry, logistics, branded food products, wine, real estate and financial services — is four years into a five-year plan to spend $10 billion on overseas mergers and acquisitions.
Cofco’s latest deal has it working with a consortium of investors led by the Hopu Investment Management Company, one of China’s biggest homegrown private equity groups, in acquiring a 51 percent stake in Noble Agri Limited. The Noble Group, listed in Singapore, will retain a 49 percent stake.
Buying control of Noble Agri gives Cofco access to a supply network that sources agricultural commodities from low-cost places that include South America, Africa and Eastern Europe and sells them to fast-growing markets in Asia and the Middle East. Noble Agri is a major processor and distributor of corn, wheat, soybeans and vegetable oils; a trader of cocoa, cotton, coffee and sugar; and a producer of sugar and ethanol.
Under the terms of the deal, Cofco and Hopu Investment will make an upfront cash payment of $1.5 billion to the Noble Group. The final price will be adjusted so that it will be equal to 1.15 times Noble Agri’s book value at the end of this year. Its book value at the end of 2013 was $2.8 billion and, should that remain comparable or increase by the end of 2014, the purchase price would be adjusted upward. But a write-down means the price could be reduced.
Noble Agri has been a moneymaker for the Noble Group since it was founded in 1998, but it swung to an operating loss last year. The unit’s sugar assets in Brazil account for about half of Noble Agri’s book value, analysts at Standard Chartered wrote last month in a research note.
“Market concerns have been focused on the potential need for a write-down in carrying value, particularly relating to the group’s sugar assets in Brazil,” the analysts wrote. They noted, however, that sugar prices are expected to rise this year and next year. “Accordingly, we believe that write-down risks are misplaced and feel that the agri suite of assets is worth considerably more than its book.”
JPMorgan is the financial adviser to the Noble Group on the deal.