Cofco buys 51% stake in Noble unit

STRATEGIC: Cofco's move to buy a stake in Noble will help China develop a powerful agricultural trading house along the lines of its oil trading business.


    Apr 03, 2014

    Cofco buys 51% stake in Noble unit


    COFCO Corp agreed to pay US$1.5 billion (S$1.9 billion) to buy a 51 per cent stake in Noble Group's agri-business, its second acquisition in less than two months as China's largest grain trader seeks to strengthen its market position across the globe.

    The two companies plan to form a joint venture - in which Noble will retain a 49 per cent stake - that will link Cofco's grain processing and distribution business in China with Noble's grain sourcing and trading arms, Noble said yesterday .

    The move will help China develop a powerful agricultural trading house along the lines of its Unipec oil trading business - one of the world's biggest crude oil buyers - as it seeks to shore up supplies of animal-feed grains to meet soaring demand for high-protein food.

    "The primary motive of the consolidation going on in this industry is supply," said Mr Abah Ofon, an analyst at Standard Chartered Bank in Singapore. "It's about guaranteeing supply where it is needed."

    For Noble, the deal adds volume to its trading business via Cofco and allows it to reduce debt. Noble's stock - which jumped as much as 5 per cent yesterday - has risen nearly 25 per cent since March 4, when news broke that Cofco was in acquisition talks with the company, adding about S$2 billion in market value.

    China is witnessing a massive expansion in demand for grains such as soya beans and corn as the growing ranks of the middle class demand more meat in their diet.

    Cofco bought a 51 per cent stake in Dutch trader Nidera in late February to gain direct access to South American grain and oilseed supplies in a deal that valued Nidera at US$4 billion, including debt.

    The latest deals follow a wave of consolidation in the world agri-business sector that has shrunk the number of potential acquisitions for it to bulk up enough to compete globally with larger rivals ADM, Bunge, Cargill and Louis Dreyfus Corp, known as the ABCDs.

    The Noble acquisition allows Cofco to bring food supply volumes into China without having to go through the ABCD pipeline, and will allow it to better control costs.

    "The transactions will strengthen Cofco's strategic importance to the Chinese government," said Mr Kai Hu, a senior credit officer with Moody's Investors Service.

    Noble's grains and oilseeds operations focus on South America, Europe and Asia. It operates three oilseed-processing factories in Asia, and supplies grains, oilseeds, vegetable oil and by-products throughout the region from Singapore.

    Noble, which is 14-percent-owned by sovereign wealth fund China Investment Corp, also trades sugar, coffee and raw materials. Its agricultural division is the smallest and generated $15.5 billion in revenue last fiscal year, accounting for about 16 per cent of the total.