China Plans New Food-Trading Giant With Cofco Merger and IPO

(Bloomberg) -- China’s largest food company plans to merge its international trading division with several domestic businesses to create a new agricultural commodity behemoth before embarking on an initial public offering.

Cofco Corp. has hired bankers to advise on a plan to combine Cofco International Ltd. with some of its domestic trading and processing assets, according to people familiar with the talks. After the merger, Cofco plans to sell shares in the new company, most likely in Shanghai, the people said, asking not to be identified as the matter is private. The IPO could value the new company at more than $5 billion, the people said.

The combination will create a new agricultural trading giant, putting Cofco’s international trading unit and some of its domestic businesses under one umbrella, with assets spanning from Brazil to China, the people said. The new company will compete with the so-called ABCDs, a quartet of global traders which have dominated the industry for decades: Archer-Daniels-Midland Co., Bunge Ltd., Cargill Inc. and Louis Dreyfus Co.

The merger is expected to raise more funds which will help drive growth of the company’s domestic and overseas business, said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Co. “It needs money to expand overseas resources because part of the role of a state-owned company is to ensure the country’s food security,” Ma said.

China, the world’s largest buyer of commodities, has helped push up food prices over the past 12 months with record purchases of corn and other crops. The new trading colossus will help secure key food-supply chains and provide Beijing with another geopolitical tool in global commerce.

The plan comes after Geneva-based Cofco International, also known as CIL, posted record profit on the back of volatile agricultural markets. The overseas trading venture had struggled for several years to make money, but in 2020 pretax profit surged to about $350 million, one of the people said. The results are unaudited and could change.

A spokesman for Cofco International in Geneva declined to comment. There was no reply to an email sent to Cofco Corp.’s headquarters in Beijing.

Minority Investors

The IPO will allow minority shareholders in CIL, including Chinese private equity investor Hopu, state-controlled China Investment Corp., Singaporean state investment agency Temasek and a branch of the World Bank, to monetize their investment. Outside investors currently own about 49% of CIL, with Cofco controlling the rest.

The merger is expected to be completed this year with the potential IPO possibly planned for the end of 2021 or early 2022, the people said. Still, the merger structure hasn’t been finalized and the IPO plan depends on investor appetite and commodities prices, they said.

Investment bankers, including a bank from China, have been awarded a dual mandate to advise on the plan to merge the Cofco assets and then prepare the IPO, the people said.

With the merger, Cofco will combine the market savvy of its international trading venture, which is one of the largest soybean exporters from South America, with its domestic assets that trade and process agricultural commodities in China. In effect, it will link farmers around the world directly with the biggest consumers in China.

Cofco made a major splash back in 2014, paying more than $4 billion to buy the agricultural trading assets of Noble Group Ltd. and Dutch grain trader Nidera BV. However, the acquisitions caused major headaches for the Chinese company, saddling it with debt and financial losses related to the deals.

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