Asian Citrus buys Beihai for $263 million

China's largest orange grower Asian Citrus vertically integrates by buying fruit juice concentrate producer Beihai BPG, giving private equity investor Lunar Capital a profitable exit.

China’s largest orange grower, Asian Citrus Holdings, will buy Beihai Perfuming Garden Juice Company (Beihai BPG) at a valuation of HK$2.04 billion ($263 million), giving a consortium of investors led by private equity firm Lunar Capital a healthy return on an investment made less than a year ago.

Asian Citrus signed a memorandum of understanding with the owners of Beihai BPG last month. The price now agreed between the parties comprises HK$780 million in cash to be paid to the holders of convertible bonds and HK$1.26 billion in the form of new Asian Citrus shares to be issued to the sellers.

Asian Citrus is listed in Hong Kong and on London’s Alternative Investment Market. It will issue shares at a price of HK$7.68 per share to existing shareholders of Beihai BPG. The price represents a discount of around 10% to the closing price of Asian Citrus's shares on the HKEx on Monday, a premium of 3.78% over the average closing price in the last 20 consecutive trading days and a premium of 64% over the unaudited net asset value per share of Asian Citrus as at the end of last year. Asian Citrus is paying around 8.8 times 2010 earnings for Beihai BPG, said a source, adding that the valuation was reasonable for the asset and the synergies with Asian Citrus.

“The deal for Beihai BPG confirms our instinct and the rationale underlying our investments -- that businesses in basic industries, such as food, in western and central China are poised for high growth,” said Derek Sulger, founder and partner of Lunar Capital, in a telephone interview with FinanceAsia.

Beihai BPG is a producer and seller of tropical fruit juice concentrates, fruit purees and quick-frozen fruits in China with an annual production capacity of over 60,000 tonnes. Last year, private equity firm Lunar Capital, along with a consortium of investors, agreed to buy around 25% of Beihai BPG. The actual investment was made earlier this year. The investors committed equity to Beihai BPG at a valuation of around $100 million, said a source. This means the investors have reaped a healthy profit on an investment they have held for less than a year.

“Beihai BPG is a good example of the Grand Hyatt rule we have coined at Lunar Capital – we seek out companies off the beaten track, which are quite often not easily accessible,” added Sulger. “Reaching the Beihai BPG facilities was no easy feat.”

Asian Citrus is the largest owner of orange plantations in China with a market share of between 2% and 3% in 2009, according to independent research by the Guangxi Citrus Research Institute. It was started in 2000 and currently owns around 3 million orange trees with a further 2 million coming on stream over the next four years. Orange trees start producing fruit after four years and reach full maturity after 10 years, said a specialist, and most of Asian Citrus's trees are very young suggesting they still have to reach their peak orange-growing potential. Asian Citrus supplies oranges to supermarkets, hotels and wholesale distributors. Beihai BPG represents an opportunity for Asian Citrus to integrate vertically and diversify its income.

Lunar Capital is currently raising capital for its third private equity fund which has a target amount of $150 million.

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