China plans overhaul of state agriculture giants

[SINGAPORE] China is planning to overhaul its mammoth state agriculture companies, transferring 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 would also include 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 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.

The revamp of the biggest state companies in China, the world's top consumer and importer of farm products, will be felt throughout global agricultural markets. It would 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.

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.

Biggest Crusher

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 percent 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.

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.

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 per cent of China's total imports, its president said in November.

Cofco started to build an international trading house in 2014 with a US$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 US$200 million hit from a rogue trader and the discovery of a US$150 million financial hole in Brazil, its plans for global expansion were revived last year after completing a corporate restructuring.

Cofco plans to trade 30 million metric 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.

BLOOMBERG