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S'pore commodity trader sells stake in agri unit to China's largest grain trader

Publication Date : 03-04-2014


Commodity trader Noble Group has sold a 51 per cent stake in its agricultural unit to China's largest grain trader Cofco Corporation for an initial US$1.5 billion as part of a joint venture deal.

Singapore-listed Noble and Cofco will form a joint venture linking Cofco's grain distribution and processing operations in China with Noble's grain sourcing.

The deal confirms widespread speculation, which surfaced last month, that the two parties were in talks centring on Cofco's aim to develop an agricultural trading arm by acquiring the Noble unit.

On March 4, Noble Group issued a statement to clarify a media report, and stated that it was "engaged in discussions with a consortium in relation to a potential joint venture around (its) agriculture business". The statement, however, did not identify Cofco as part of the consortium.

Noble shares have shot up 26.8 per cent to S$1.255 as of yesterday's close since March 3, when rumours of a possible deal broke (see price chart). It rose 5.02 per cent yesterday alone on the news.

Noble Agri will become a 51:49 joint venture after the deal, which values Noble Agri's equity at 1.15 times of its 2014 book value.

While the initial payment is US$1.5 billion in cash, the final price will be adjusted according to Noble Agri's book price at the end of the year.

Shareholders' equity of Noble Group was US$2.8 billion and it had a net debt of US$2.5 billion, as at December 31 last year.

A consortium of international investors led by Hopu Investments will also join Cofco as minority co-investors in the acquisition.

Cofco chairman Frank Ning said in a statement: "Noble Agri's supply chain management system and origination capabilities complement Cofco's logistics, processing, and distribution network in China." He also expects the deal to create "significant synergy and value".

Commenting on the joint venture, Barclays Research said the deal is in line with Noble's asset- light strategy.

"The de-consolidation of the agri-business would enable (Noble) to improve its earnings as well as lighten its capital base, while the de-consolidation of third-party debt would help improve its credit profile."

This deal is the latest in a string of acquisitions in the sector that points to the likelihood of further consolidation in the global commodity industry.

Last month, a takeover offer for Olam International was made by a group of investors led by Breedens, a unit of Singapore investment company Temasek Holdings. The consortium already owns 52.5 per cent of the agri-commodity trader, and offered to buy the firm at S$2.23 apiece. That comes at a 12 per cent premium over Olam's $1.995 closing price on March 12 before its trading was halted.

Olam's chief executive Sunny Verghese told Reuters in an interview yesterday that "consolidation in the soft commodities space has been a trend for some time" and is set to continue.

"It is an attractive sector with good returns in the long term, and there is a race intensifying for resources," he said on the sidelines of a conference in Jakarta.
Noble shares closed six cents up to S$1.255 yesterday, after the joint venture announcement was made.

*US$1 = S$1.26


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