AB Foods scales back in China

The British conglomerate has sold its China cane sugar business to Nanning Sugar; making it the latest foreign company to bow out in the face of fierce local competition.

Associated British Foods (AB Foods) said on Monday that it has agreed to sell its Chinese cane sugar business to a consortium led by Nanning Sugar, making it the latest foreign company to sell assets in the world’s second-largest economy.

Shenzhen-listed Nanning Sugar said it was paying CNY1.68 billion ($252 million) for control of the four parts of the business in a statement to the stock exchange. The enterprise value for the business is around $500 million, according to a person familiar with the asset.

Nanning Sugar counts the Guangxi government among its investors. It signaled its intent to make acquisitions in June when it established a buyout fund with partners.

AB Foods is not alone. A flood of other multinational companies have also sold assets in China as the economy slows, the renminbi depreciates and local competition heats up. Microsoft decided to sell MSN China to Xichuang Technology last month; US taxi-hailing app Uber Technologies also said it would sell its China business to DiDi Chuxing Technology two weeks ago and McDonald’s is looking to sell its China and Hong Kong stores, according to people familiar with its plans.

AB Foods is scaling back in China because it was not able to gain enough market share to be able to compete with local players, according to a source familiar with the situation.

Nanning Sugar fought off competition from at least one state-owned enterprise and privately owned local company.

AB Foods has been in Chinese sugar cane market for 11 years since 1995. Most of AB Foods’ cane sugar business in China is in the south of the country. After this deal, AB Foods will still have small cane sugar operation in northern China.

AB Foods’ stock price was down 9% at GBP28.76 by 11:30 GMT after a disappointing trading update.

Nanning Sugar shares, with a market capital over $1 billion, were suspended from trading on Monday in Shenzhen.

“We expect net debt to fall closer to zero once the sale of ABF’s cane sugar business in southern China completes (contribution of >£250 million),” said Richard Chamberlain an analyst at RBC Capital Markets.

AB Foods is one of the world’s largest sugar producers, employing more than 42,000 people across 29 plants in ten countries and with a capacity to produce over 5 million tonnes of sugar and 600 million litres of ethanol each year, according to the company website.

The cane sugar business is a very regulated industry in China. It’s more difficult for foreign investors to operate. There is a constant local battle between the local government and the local players.

The top three cane sugar players in China are Yangpu Nanhua based in Danzhou, Shanghai-headquartered Bright Food and Thailand's Mitr Phol. Each of them has more than 10% market share.

Upon completion of the transaction, which is subject to third party consents and regulatory approvals, AB Foods will receive payment together with the repayment of related loans, the British company said during its trading update.

AB Food’s financial advisor is Deutsche Bank, according to data provider Dealogic.

Additional reporting by Alison Tudor-Ackroyd

This story has been updated to include a statement by Nanning Sugar on September 13


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