COFCO Seeking to Combine Grain, Edible Oil and Sugar Businesses for IPO by 2019

China’s largest food group, COFCO Corp., is reportedly canvassing investment banks seeking proposals for a possible group restructuring. The group, which encompasses eight separate listed groups, is considering combining units and selling non-core businesses to improve profitability. After being on a campaign to acquire overseas assets in recent years, the group’s new goal is to consolidate and organize their existing assets, to create a full supply chain in the agribusiness space.

One possibility being discussed could be COFCO’s cooking oil business, China Foods Ltd., divesting itself of its confectionary business, or merging with another company, such as oilseed processor, China Agri-Industries Holdings Ltd.

Under the restructuring plan, there are talks that COFCO will combine all of its grain, edible oil, and sugar businesses, which are currently spread across different units. Once combined, the group is expected to seek a public listing of the resulting business by 2019.

The scale of COFCO is formidable. Among many others, the state-owned group owns stakes in China Mengniu Dairy Co., the second largest producer in China; China Foods, which produces wine, sells cooking oil under the Fortune brand, and bottles Coca Cola beverages in the north of the country, and last year, spent $3.5 billion to acquire the Dutch grain trader. COFCO also owns Nidera, and the agribusiness unit of Noble Group, which will give the group access to the South American and Eastern Europe grain markets, while propelling it to be a rival of the top four A-B-C-D global traders of Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus. Indeed, on May 12 COFCO lured Matthew Jansen, a senior executive from its U.S. competitor ADM to head the group’s push into the global agricultural trading sector.

Upon news of the strategic plan, shares of China Agri-Industries rose 8.7% in Hong Kong, closing at their highest in over two years, resulting in a market value of $3.2 billion. China Foods gained 6.4%, while the group’s packaging arm, CPMC Holdings Ltd., gained 6.5%. Cofco Tunhe Co., and Cofco Biochemical Co. climbed the full daily limit in Shenzhen, while Cofco Property Group Co. closed 8.2% higher according to Bloomberg.

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