Cofco units surge on US$57b China state food giant's revamp

[HONG KONG] Cofco Corp's listed units surged for a second day, after people with knowledge of the matter said China's largest food company has invited investment banks to submit proposals for a possible group restructuring.

Cofco Tunhe Co jumped as much as 7.2 per cent in Shanghai trading Tuesday, giving the sugar producer a US$4.8 billion market value. Cofco Biochemical Co, which makes flavouring agents and preservatives, gained as much as 6.3 per cent in Shenzhen. The group's packaging arm, CPMC Holdings Ltd, advanced as much as 9.2 per cent in Hong Kong to the highest since October 2014 while China Mengniu Dairy Co rallied as much as 4.1 per cent.

State-owned Cofco Corp will consider combining units and selling peripheral businesses to improve profitability, the people said Monday, asking not to be identified as the information is private. Cofco Tunhe said in an exchange filing Monday its Beijing-based parent company is planning a group listing as a "strategy for future development," though no timetable has been set.

The reorganisation of Cofco may provide a blueprint for China's broader overhaul of its state enterprises, as it's one of six companies the government has selected for testing of reforms. China runs thousands of companies ranging from nuclear- plant operators to tourism kiosks with total assets of more than 100 trillion yuan (US$16 trillion).

Restructuring possibilities that may be proposed include Cofco's cooking-oil producer China Foods Ltd divesting its confectionery business or merging with a sister company such as oilseed processor China Agri-Industries Holdings Ltd, the people said. Cofco, which has operations in 140 countries, was founded in 1949 and grew through a series of mergers to amass more than US$57 billion of assets, according to its website.

"Cofco has been very active in acquiring overseas assets," Liu Guanyu, a manager at Xiamen International Trade Group Corp, which buys and sells commodities including iron ore and rubber, said Monday. "Its strategy now is to consolidate, to create a full industrial chain in the global agricultural market."

The state-run company, which last year bought controlling stakes in Dutch grain trader Nidera BV and Noble Group Ltd's agribusiness arm, is also weighing a plan to combine all the grain, edible oil and sugar businesses currently spread across different units, according to two of the people. It would then seek a stock-market listing for the merged business by 2019, they said.

Cofco hasn't yet hired an adviser or decided on a course of action, and any restructuring plan would need regulatory approval, the people said. Two phone calls and an e-mail to Cofco's press office weren't answered, while investor-relations officials at China Agri-Industries didn't respond to calls and an e-mail seeking comment. Jacky Man, an investor-relations official at China Foods, declined to comment.

The group owns stakes in Mengniu Dairy, the nation's second-largest dairy producer, and Joy City Property Ltd, which develops commercial real estate. CPMC Holdings makes the aluminum cans used by the country's best-selling Snow beer, while China Foods produces wine, sells cooking oil under the "Fortune" brand and bottles Coca-Cola Co beverages in parts of northern China.

The group also runs tourist resorts, a regional bank and an insurance venture with London-based Aviva Plc.

BLOOMBERG