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Pacific Andes group now in calmer waters

After political troubles in Russia and a major Peruvian acquisition, the fish business is looking up again: MD of Pacific Andes International Holdings
Wednesday, June 10, 2015 - 05:50
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Despite a slowdown in the Chinese economy and overcapacity in many sectors, the demand for fishmeal has not gone down, says Ng Joo Siang (above), MD of Pacific Andes International Holdings.

Singapore

PACIFIC Andes International Holdings, one of the largest seafood companies in the world, has faced choppy seas in the last three years.

Political troubles in Russia, where the company was investigated for monopoly activities, a hostile takeover for a major Peruvian fishing company, and a substantial amount of debt had sent investors in its two Singapore-listed entities, China Fishery Group and Pacific Andes Resources Development (PARD), running for the exits.

"I'm glad to say that all these are over. We have removed most of the bad news. We solved the Russian issue by terminating the long-term supply agreements. We paid off US$250 million of our most expensive debt," Pacific Andes International Holdings' managing director Ng Joo Siang told The Business Times in an interview on Tuesday.

Pacific Andes International Holdings is the Hong Kong-listed holding company of the group. PARD's business is in seafood trading and ocean logistics. It owns 70 per cent of China Fishery Group, whose business is in upstream fishing and fishmeal production.

China Fishery's debt was incurred after acquiring Copeinca, Peru's second-largest fishing company, for almost US$800 million in 2013. A four-for-five rights issue this year raised cash to pay off Copeinca's 9 per cent US$250 million notes due 2017. This reduced net gearing ratio to 48 per cent from around 100 per cent a year ago.

In the next two years, China Fishery will be consolidating its numerous acquisitions and streamlining operations, said Mr Ng, 55, a Malaysian educated in Singapore and the US and who entered his father's seafood trading business some 30 years ago.

The Copeinca acquisition is expected to result in efficiency savings. The fall in oil prices will also benefit China Fishery's fleet, which incurred bunker fuel costs of US$70 million last year, he said.

Cost savings aside, demand for fishmeal is also looking up, he said.

The Copeinca deal was the culmination of a series of acquisitions in Peru by China Fishery since 2006 that gradually increased the company's quota of what it can catch. The Peru government sets the quota for every firm based on studies of the ocean's biomass.

After the deal, China Fishery became the largest fish player in Peru, a country whose Peruvian anchovy fish species is the single largest yielding wild fish species in the world.

Mr Ng said there is rising demand for fishmeal, a protein-rich powder made from dried crushed fish that is used as feed in fish, pig and chicken farms. At the same time, the world's fish supplies are being depleted with overfishing.

Total fish supply in the world is around 160 million tonnes a year today, Mr Ng said. Roughly half is made up of wild catch. By 2030, global demand is estimated to be 250 million tonnes, or a growth rate of 3 per cent a year.

Yet with wild catch having stagnated since the 1990s at around 90 million tonnes, aquaculture - fish, shrimp, and oyster farms - is expected to play a bigger role in providing seafood for human consumption.

Despite a slowdown in the Chinese economy and overcapacity in many sectors, the demand for fishmeal has not gone down, Mr Ng said.

"China is the world's largest consumer of fish, and will continue to be. People need to eat. The Chinese want to have a better life," he said.

What affects China Fishery's business, however, is a mix of weather effects as well as regulatory risk, given its operations across international waters and multiple jurisdictions.

The El Nino weather phenomenon caused warmer ocean waters, resulting in dispersed fish populations last year. This caused a yield of only 61 per cent of the firm's Peru fishing quota in the April to July fishing season.

For the second fishing season from November 2014 to January 2015, Peruvian scientists found a lot of young fish, and recommended that the fishing season not be opened.

Observers are stationed on vessels to ensure no illegal fishing or unauthorised catches of other species.

"Last year we had one incident, the fish in the net was too much ... we had to cut the rope and let the fish go loose. If we didn't, the vessel would capsize. We were fined for throwing the dead fish into the water. The fine was not much, but it hurt our reputation," Mr Ng said.

In another incident last year, the group's flagship vessel Damanzaihao did not get the required authorisation to enter the South Pacific Ocean. It landed on the blacklist of inter-governmental organisation South Pacific Regional Fisheries Management Organisation for illegal, unreported and unregulated vessels this year.

"Management took it very seriously. This was a very big error from our side," Mr Ng said, adding that the firm has since established a committee to better ensure that the understanding of regulations is institutionalised.

Despite reports on the phenomenon, El Nino does not seem to be as big a deal this year so far, he noted. The company had already caught 85 per cent of its Peruvian quota of the "A" season, which ends in July.

He added that fish prices are now apparently so good that Russian firms, which owe China Fishery prepayment refunds after the termination of long-term supply agreements, are expected to pay the firm back this month for an instalment originally due in September.

Meanwhile, Mr Ng said his focus will be ensuring the firm is lean, efficient and run by professional managers. Asked about succession plans, he hesitated, before saying with a laugh: "I was hoping to retire very soon."

PARD shares closed trading on Tuesday down 0.2 cent at S$0.062 while China Fishery ended 1.5 cents lower at S$0.215.

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