by Bloomberg News
China is said to be planning a shake-up of its massive state-run food companies in a move that’s set to reverberate around global agricultural markets.
The government plans to transfer the trading assets of stockpiler Sinograin to food giant Cofco Corp., according to people with knowledge of the plan. The restructuring would be implemented in several stages and also includes Cofco taking over oilseed crushing capacity from Sinograin, said the people, who asked not to be identified because they’re not authorized to speak publicly.
The revamp of the biggest state companies in China, the top consumer and importer of farm products, will take Cofco closer to its goal of rivaling the storied ‘ABCD’ group of international commodity powerhouses that dominate flows of agricultural products, while extending its ability to secure food supplies for the world’s most populous country.
The overhaul would also dovetail with President Xi Jinping’s drive to reform China’s sprawling and inefficient state-owned enterprises, which account for almost half of the nation’s industrial assets. Steel, power and chemicals companies are among those already targeted in the restructuring program, with a long-mooted megamerger of China National Chemical Corp. and Sinochem Group now said to be close.
“The reshuffle plan for the two agricultural giants reflects the central government’s efforts to promote ‘supply-side’ structural reforms,” said Monica Tu, an oilseed analyst from Shanghai JC Intelligence Co. “It’ll become part of the wave created by the reorganization of large state-owned companies.”
The details of the plan are subject to change, the people said. The Chinese government aims to complete the restructuring by the end of next year, according to two of the people.
While Cofco’s duty is to keep China’s population fed, Sinograin’s role is more blurred. It imports soybeans and soyoil for state reserves, but it also has commercial oilseeds crushing and refining capacity that makes it the fifth-biggest player in China, according to its website.
Transferring Sinograin’s crushing capacity would make Cofco China’s biggest crusher of soybeans, according to data from China National Grain and Oils Information Center. Cofco has nine listed units in Hong Kong, and four trade on mainland Chinese stock exchanges. Shares of Cofco’s subsidiaries, processor China Agri-Industries Holdings Ltd. and beverage maker China Foods Ltd., reversed earlier losses to close 1.6% higher in Hong Kong.
The State-owned Assets Supervision and Administration Commission, an arm of the Chinese government overseeing the biggest government enterprises, didn’t respond to a fax seeking comment. Representatives at Cofco and Sinograin also didn’t reply to a fax and email inquiry.
Founded in 1949, Beijing-based Cofco had sole purview over the country’s agricultural imports until the late 1980s. It has a total oilseed crushing capacity of 21.8 million tons, the largest in Asia, and refinery capacity of 6 million tons. Its soy purchases account for about 20% of China’s total imports, its president said in November.
Cofco started to build an international trading house in 2014 with a $4 billion buying spree that saw it take control of Nidera BV and the agricultural arm of Noble Group Ltd. While its trading unit, Cofco International Ltd., has been hamstrung by poor results, a $200 million hit from a rogue trader and the discovery of a $150 million financial hole in Brazil, its plans for global expansion were revived last year after completing a corporate restructuring.
Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Ltd., said the overhaul would strengthen the core role of Sinograin as a state grains stockpiler, while allowing its other businesses of more market-oriented operations to be run by Cofco. Still, Cofco may face challenges ahead in ensuring crush margins, Ma said.
“The overhaul will expand Cofco’s assets, but not necessarily profitability given the fierce competition of the domestic soy crush industry that’s been suffering excessive capacity" said Ma.
Cofco plans to trade 30 million tons of corn by 2020, 5 million tons of sugar and process 20 million tons of soybeans, according to its 13th five-year plan proposed in 2016. Cofco International Chairman Johnny Chi said in March the global trader plans to increase agriculture commodities directly from farmers outside China to 60 million tons per year by 2022 from 40 million tons now.
--With assistance from Molly Dai.
To contact Bloomberg News staff for this story:
Alfred Cang in Singapore at [email protected];
Steven Yang in Beijing at [email protected];
Andy Hoffman in Geneva at [email protected];
Niu Shuping in Beijing at [email protected]
To contact the editors responsible for this story:
Alexander Kwiatkowski at [email protected]
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