2015-07-27: Article in Dagens Nyheter about Sino Agro Food (in Swedish)
Link to article: Kinesiskt företag vill bli störst på jätteräkor
Link to article: Kinesiskt företag vill bli störst på jätteräkor
The transformation of China’s agriculture has attracted great attention in the merger and acquisition (M&A) space and capital markets. Chinese agricultural companies have become more vertically integrated in the value chain and the integration targets are no longer limited to those in domestic markets, consultancy Deloitte said in a new report. A number of Chinese agricultural giants have made acquisitions both locally and overseas to seek further economies of scale and additional land resources, said the report.
Driven by sharply increasing demand for food products around the world, China’s farming sector has seen many new entrants including financial investors who previously had no connections or experience with the industry. Capital has become more plentiful in a sector where new technology, knowhow and management are much in demand in the perpetual quest for higher productivity at lower cost.
There is growing public concern over the quality of water in China, with more than 75 percent of urban residents now saying they are willing to pay more for safe water, according to a report published on Monday. The Value of Water Index, conducted by US-based Xylem Inc, a global water technology provider, and Beijing-headquartered E20 Environment Platform, shows that 96 percent of urban Chinese believe the country faces serious water supply issues. The biggest concerns are pollution, industrial discharge and overconsumption. A report released by the Ministry of Environmental Protection revealed the majority of China’s groundwater is polluted, Xinhua reported.
Overseas mergers and acquisitions (M&A) by Chinese enterprises were up 31% in the first nine months of this year from a year ago. A report released by PwC also showed that the total value of overseas M&A deals by Chinese enterprises reached USD40bn in the first three quarters of the year. Of the total M&A transactions from January to September, 14 were valued at more than USD1bn each. Private enterprises completed a total of 120 M&A transactions from January to September of this year, double the transactions made by state-owned enterprises, the report said.
A staged free trade agreement (FTA) between China and Australia is to be signed in Canberra on Monday, 11th November, in a move analysts said will help boost the bilateral trade between the two countries even if the staged agreement may not cover all issues as exactly as the expected way.
The China-Australia FTA would be a high-level free trade agreement, under which a majority of import and export goods will be exempted from tariffs. The initial agreement would cover services and agriculture and some aspects of foreign investment while being less accommodating of Chinese labor demands, a source said in the report.
The deal would be structured to enable additions over the years as the relationship and economies of the two countries evolve, according to the Australian Financial Review newspaper on Tuesday, citing unnamed senior sources.
Yunfeng Capital, which Ma set up with Citic Private Equity, spent at least 2 billion yuan ($360 million) in July acquiring a 60 per cent stake in Chinese dairy giant Yili Industrial Group. Internet company NetEase has invested in an 80 hectare pig farm in the eastern province of Zhejiang. Computer maker Lenovo has set up an agricultural subsidiary, Joyvio, which plans to invest 1 billion yuan to 2 billion yuan over the next five years in agriculture. So far it has put money into blueberry and kiwi fruit farms.
Both the political and market environment are creating opportunity for investors. The government is considering introducing significant land reforms, as well as changes to the way more than 1700 state-owned farms are operated. Also there has been increasing demand for high-quality products driven by a rising middle class and food safety concerns.
Chinese merger and acquisition deals in agriculture have reached a record $9.8 billion so far this year, a seven-fold jump from 2013, according to international financial software company Dealogic PLC. Dealogic statistics showed that by the start of September, Chinese enterprises made 27 deals in the field of agriculture with a large number of overseas deals, reported the Economic Information Daily.
Fu Xuejun, analyst at Huarong Securities Co Ltd, said as the demand for Chinese agricultural transformation and upgrade increases, more and more Chinese agricultural enterprises are working out a strategy for vertical integration in the supply chain to not only ensure food security but also to develop internationally and become global operations.
Chinese demand for food is increasing rapidly. Recognizing that it cannot produce enough domestically, mainland Chinese and Hong Kong-listed companies spent $12.3 billion last year abroad on takeovers and investment in food, drinks and agriculture, the highest number in a decade, data compiled by Bloomberg shows.
Cofco Corp., China’s giant in food security that controls 90 percent of China’s wheat imports has made two acquisitions this year providing a strong platform for production of grain in Brazil, Argentina and Central Europe, the company said earlier this year. In the task of feeding China they will face competition from other global giants and more M&A activity is likely.
Bloomberg reports that the valuation difference between Chinese shares traded in Hong Kong and Shanghai narrowed for a fourth consecutive day. This after the first full trial of the cities’ exchange link went well. The exchange link is predicted to reduce gaps between dual-listed shares by facilitating for arbitragers the movement of money between the two markets. The Hang Seng China AH Premium Index of dual-listed companies, an index that tracks the average price of A shares over H shares, rose 0.4 percent to 93.45 at the local close.
The Chinese market is no exception to the soaring global M&A activity as it hit its 3-year-high in terms of deal value, according to a PwC report released Tuesday. The M&A deal value was $183 billion in the Jan-June period, up 19 percent from second half of 2013. Although the number of deals did not increase significantly, the deal sizes were bigger with 30 deals larger than $1 billion. The report also noted that Inbound M&A deal value saw a fourth consecutive increase and hit a new high with deals worth $12.5 billion during the first half of the year, up from ~$8.4 billion in the second half of 2013.
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