Japfa to list China dairy unit in Hong Kong; proposes distribution-in-specie of its shares

AGRI-FOOD company Japfa has applied to list its dairy unit in China, AustAsia Investment Holdings, on the mainboard of the Stock Exchange of Hong Kong.

As part of a capital reduction exercise related to the listing, Japfa is also proposing a distribution-in-specie of its entire shareholding in AustAsia, which will see eligible shareholders receiving AustAsia shares in proportion to their respective shareholdings in Japfa.

No cash outlay is required from Japfa shareholders under the proposed distribution, the company said on Tuesday (Mar 29).

Japfa said the listing will unlock value for shareholders, by creating 2 separate businesses and providing each entity's management the operational flexibility and the ability to concentrate on their respective core business.

The company will also be able to better focus its financial resources on its animal protein business without needing to plan for AustAsia's funding requirements.

Meanwhile, the proposed distribution is expected to provide Japfa shareholders greater clarity on the respective value and business of its animal protein segment and AustAsia.

For illustrative purposes, Japfa noted that the value of its interest in AustAsia is S$0.49 per Japfa share based on transactions made in 2021, while its stake in its animal protein segment is valued at S$0.49 per Japfa share, which, combined, is higher than Japfa's share price of S$0.645 as at Mar 28.

The proposed distribution also provides flexibility to Japfa's shareholders to deal with their stake in AustAsia independently of Japfa, without any additional cash outlay, while having the option to participate in the growth of both entities, the company said.

Japfa's chief executive and executive director Tan Yong Nang noted that the separation of the 2 entities is a "watershed moment" for the group, adding that the animal protein segment has emerged stronger from the Covid-19 down-cycle.

He said: "We are confident Japfa Animal Protein is well-positioned in shaping the animal protein industry with a multi-year runway to take advantage of the growth opportunities in these countries."

If the proposed distribution takes place, Japfa will cease to hold any AustAsia shares, and the latter will cease to be a subsidiary of the company.

The capital reduction exercise will reduce Japfa's issued and paid-up capital by US$555 million, based on its cost of investment in AustAsia, although there will not be any reduction or cancellation in the number of issued shares.

On a pro forma basis, the net tangible assets per share of Japfa as at Dec 31, 2021 is expected to fall to S$0.61 from S$0.94, assuming the proposed distribution has been completed on Dec 31, while earnings per share is expected to fall to S$0.0265 from S$0.0782, assuming the proposed distribution has been completed on Jan 1. (see amendment note)

Japfa noted that following the proposed distribution, its animal protein segment will remain a significant business, with pro forma revenue of over US$4 billion and pro forma earnings before interest, tax, depreciation and amortisation (Ebitda) of US$374 million in 2021. The animal protein segment accounted for 88 per cent of the group's revenue and 70 per cent of the group's Ebitda in 2021.

As for its management team, Japfa said AustAsia had always maintained an independent management team, hence there will be no changes in the business, continuity of management and operational control of the animal protein segment.

Japfa's animal protein segment comprises Japfa Comfeed Indonesia, its Indonesia-listed entity which produces animal feed and animal proteins such as poultry, beef and aquaculture; its Vietnam operations which focus on poultry and swine feed as well as commercial farming; and its other animal protein businesses in India, Myanmar and Bangladesh.

Meanwhile, AustAsia is Japfa's milk producer in China.

Japfa will be seeking shareholders' approval for the proposed distribution at an extraordinary general meeting at a date to be announced. DBS is the financial adviser to Japfa in respect of the proposed distribution.

Shares of Japfa closed up S$0.005 or 0.8 percent at S$0.65 on Tuesday.

READ MORE:

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• Japfa to sell equity stakes in China dairy unit for US$87.6m
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Amendment note: A previous version of this article misstated the pro forma earnings per share of Japfa. The article has been amended to reflect the correct figures.