China's top pig farmer seeks Cofco deal

State-owned food giant Cofco is seeking to restructure with private-sector help. And an Rmb1 billion investment from a pork producer into its finance unit could be the latest step.

China’s largest pig farmer Guangdong Wens Foodstuffs Group plans to invest up to Rmb1 billion ($147 million) in a subsidiary of Chinese agribusiness giant Cofco Group, Guangdong Wens said in a statement to the Shenzhen stock exchange on Tuesday.

Guangdong-based Wens will put between RMB800 million and RMB1 billion into Cofco Capital, the finance unit of the state-owned enterprise. Wens expects the investment to help bolster its business by working more closely with Cofco, it said in the statement.  

Cofco announced in April that Cofco Capital was seeking to raise 8 billion yuan, half of it from private sector investors. The conglomerate is aiming to transform its shareholding structure as part of the country’s wider campaign of SOE reform.

Part of Cofco’s restructuring plan includes introducing mixed ownership into its subsidiaries and listing more of its divisions on public markets. The company has 13 publicly traded subsidiaries, including Hong Kong-listed China Mengniu Dairy and Joy City Property.

Last year, Cofco listed its own meat unit, Cofco Meat, in Hong Kong.

And it plans to list Cofco Capital before 2020, according to a news report by local media Yicai last year.

“For the purpose of IPO, (Cofco Capital) needs the participation of non-state-owned enterprises to meet the criteria for shareholding structure,” said Zhou Jiaxing, a Shanghai-based analyst at Guoyuan Securities. “Wens could be a good partner since it is the dominant leader in the (meat producing) industry and has a very good cash flow.”

The Guangdong-based meat producer sold 17 million pigs and 819 million chickens last year. Net profit rose by 89.7 percent to RMB11.8 billion in 2016, thanks to the soaring pork prices. Net profit in the first quarter, however, more than halved as pork prices tumbled from the peak.

Media representatives at Wens did not respond to emails and phone calls seeking comment.

China's agricultural sector has been attracting considerable M&A interest in recent months, driven by the country's growing wealth, burgeoning middle class and long-standing concerns over food safety.

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