On 20 Sept., 2016, COFCO Tunhe Co., Ltd.
(COFCO Tunhe) released its proposal for A share private placement.
Specifically, it intended to issue <=160 million shares to 3 specific
targets including COFCO Corporation, Zhongxing Jianrong (Beijing) Investment and
Management Co., Ltd. and Shandong Juying Industry Fund Partnership (Limited
Partnership), for USD259.49 million (RMB1.73 billion) in total.
Source: Baidu
According to the proposal, this sum is expected to be invested into:
1. The project of cane sugar production upgrading
and reconstruction and quality high output and high sugar content sugarcane
planting base – USD66.33 million (RMB443 million)
It is to be constructed respectively by COFCO Tunhe Chongzuo Sugar Co., Ltd.
(Chongzhuo Sugar) and COFCO Chongzuo Jiangzhou Sugar Co., Ltd. (Jiangzhou
Sugar). Specifically, USD42.38 million (RMB283 million) will be input into
Chongzuo Sugar for a sugarcane planting base covering 6,667 ha (100,000 mu) and
USD23.96 million (RMB160 million) into Jiangzhou Sugar for 3,333 ha (50,000
mu).
2. The project of beet sugar technological
upgrading and reconstruction – USD42.97 million (RMB287 million)
It is aimed at carrying out technological upgrading and reconstruction for 5
branches / subsidiaries, including Changji Branch, Yanqi Branch, Emin Branch
and Xinyuan Branch, and subsidiary Xinjiang Yili Xinning Sugar Co., Ltd.
Specially, it will involve environmental reconstruction, dry processing (for
better transportation), automation improvement, automated packing line and contamination
control.
3. Working capital – USD150.04 million
(RMB1.00 billion)
This is a basis for business development.
COFCO Tunhe has 2 goals in this private
placement.
1. To develop sugar business in southern China
COFCO Tunhe is mainly producing cane / beet sugar. Of this, its beet sugar
business is restricted by high production cost and long distance
transportation.
In China, cane sugar plays a key role: in 2014/15 extracting season (Oct.
2014-Sept. 2015), the sugar output reached 10.56 million tonnes, of which 9.82
million tonnes were cane sugar, 93.01% of the total. Now the production of cane
sugar is centred in southern China, at 90%+, and Guangxi Zhuang Autonomous
Region (in South China) is a key cane sugar producing area, planting area
(sugarcane) and output (cane sugar) both making up 60%+ of the national
figures.
COFCO Tunhe has 3 subsidiaries in Guangxi, namely Chongzuo Sugar, Jiangzhou
Sugar and COFCO Tunhe Beihai Sugar Co., Ltd. Its increased investment into
Guangxi business is hoped to expand its sugar business and support its
financial improvement.
Currently, domestic sugar price maintains high: USD885/t (RMB5,911/t) in Sept.,
up by 10.50% YoY, according to CCM’s price monitoring. The US Department of
Agriculture ever predicted that the sugar shortage in China would reach 2.41
million tonnes in 2016, and the stock would decline to 4.87 million tonnes by
the end of 2016, down by nearly 50% over 2014.
China is increasing control over imported sugar. In Oct. 2014, China’s Ministry
of Commerce and General Administration of Customs jointly issued the Listing
into Catalogue of Automated Import Licenced Goods (Sugar). From this, the
import of out-of-quota sugar is included in the automated import licencing
range, which means that the import of out-of-quota sugar should go through one
more examination.
In 2016/17 extracting season, the fighting against smuggled sugar (raw sugar
mainly) will be strengthened. In this context, the supply shortage is expected
to be enlarged, despite an estimated rise in output (to 9.90 million tonnes,
according to the Ministry of Agriculture of the People's Republic of China, vs.
8.70 million tonnes in 2015/16).
2. To optimise assets structure and reduce
financial risks
According to its financial report, by June 2016, COFCO Tunhe had total
liabilities of USD1.44 billion (RMB9.91 billion), and total assets of USD2.38
billion (RMB15.87 billion, showing a debt-to-assets ratio of 62.45% (vs.
40-60%, appropriate level for enterprises). This to certain extent restricts
its business expansion.
The supplement to working capital this time will help optimise its assets
structure and reduce the financial risks.
From this private placement, COFCO Tunhe will enlarge its input into sugar
projects, to continuously increase its sugar output and improve its sugar
quality, and meanwhile to enhance its profitability.
Market price of sugar in China, Jan.
2015-Aug. 2016
Source: CCM
This article comes from Sweeteners China News 1609, CCM
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Tag: sweeteners sugar