COFCO's State-Owned Capital Reform Plan Is Clear: It Will Consolidate 11 Listed Companies Under Its Umbrella
Although the pilot plan for COFCO Group Co., Ltd. (referred to as “COFCO”) as a state-owned capital investment company has not yet been made public, the related reform strategies, reform goals and directions have basically surfaced.
A few days ago, according to a management insider at COFCO Group, as early as the first half of this year, COFCO's pilot plan as a state-owned capital investment company had already been completed. Its core content is to start with equity diversification, and while introducing various types of capital such as industrial, fund, private and foreign capital, through methods such as realizing an internationalized whole-industry chain, spinning off and listing business segments, and bringing in professional managers, to build COFCO Group into a state-owned capital investment company with grain, oil and food as its core main business.
Economic Observer learned from listed companies under COFCO such as COFCO Tunhe and Jiugui Liquor that COFCO Group has already begun the splitting and consolidation of some listed companies.
For example, in the sugar business, both COFCO Tunhe and Huafu Group under COFCO have sugar businesses, but COFCO Tunhe is the country's largest beet sugar producer. COFCO's next plan is to merge Huafu Group's sugar business as a whole into COFCO Tunhe; in the baijiu sector, COFCO attaches considerable importance to Jiugui Liquor, which it acquired last year, and is currently planning to use it as a platform to acquire Hunan's Xiangjiao Liquor Industry and expand the baijiu market.
The aforementioned COFCO management insider told Economic Observer that the State Council has now announced the overall plan for state-owned enterprise reform, putting forward relatively clear definitions and requirements for state-owned capital investment companies. It is expected that within the year, COFCO will announce the already completed pilot plan for a state-owned capital investment company, and will also accelerate the pace of introducing outside capital and spinning off and listing business segments.
The COFCO management insider told Economic Observer that before SASAC determined the pilot enterprises for state-owned capital investment, COFCO had basically formed an investment-company-type organizational structure with grain, oil and food as its core main business. In fact, COFCO International was the prototype of a state-owned capital investment company. COFCO International is registered abroad. Next, with the help of this comprehensive international agricultural products investment and trading platform, COFCO will transform into a publicly listed “global agricultural company.”
Introducing Capital
SASAC announced the first batch of 6 pilot enterprises for state-owned enterprise reform in July 2014. At that time, the positioning of the two central enterprises COFCO and China Development Investment Corporation was as pilot enterprises for state-owned capital investment companies.
Before that, COFCO and CIC had already jointly established COFCO International, and with the help of this international investment platform, in February and April 2014, successively successfully took controlling stakes in Nidera and Noble Agri. This pioneering transnational acquisition by COFCO in China's grain sector and even the entire agricultural field was a typical state-owned capital investment act, and it played a decisive role in SASAC's selection of COFCO as a pilot enterprise for a state-owned capital investment company.
A COFCO management insider analyzed to Economic Observer that for current state-owned enterprises, carrying out state-owned capital investment is mainly about introducing various types of outside capital. In this regard, COFCO has explored for many years. For example, in 2009, COFCO joined hands with Hopu Fund to acquire 20.03% of Mengniu Dairy for HKD 6.1 billion, becoming its largest shareholder; in May 2013 and February 2014, COFCO cooperated twice with France's Danone Group to establish joint ventures, making Danone the second largest shareholder of Mengniu Dairy. In this way, within the corporate entity of Mengniu, the coexistence and common development of multiple forms of ownership has already been realized. Before and after COFCO became a pilot enterprise for a state-owned capital investment company, COFCO successively introduced several powerful foreign-funded funds. In June last year, COFCO Meat cooperated with KKR, Baring Private Equity Asia and others to invest USD 270 million in China to build large-scale pig farming plants and meat processing plants; in August last year, Womai.com introduced IDG and SAIF Partners, completing financing of USD 100 million, used for COFCO's expansion in fresh cold chain and related links.
It is reported that after years of investment cooperation, COFCO has now formed long-term strategic partnerships with large international investment institutions such as Hopu Fund, Temasek, and Standard Chartered Private Equity. In the investment in COFCO Meat, as well as the acquisitions of international enterprises such as Nidera and Noble Agri, Hopu Fund participated in the investment.
From the establishment of COFCO International to the successive acquisitions of two major international agricultural giants afterward, in fact, COFCO has basically formed an investment-company-type structure with grain, oil and food as its core main business, and possesses the prototype of a state-owned capital investment company. It is reported that in terms of introducing capital in the future, COFCO will use mixed ownership as the main means of allocating resources, vigorously introduce strategic investors such as industrial capital, social capital and private equity of other forms of ownership into its various subordinate enterprises, and accelerate the pace of summarizing the pilot experience of a state-owned capital investment company.
The aforementioned COFCO management insider told Economic Observer that in fact, COFCO's pilot plan for a state-owned capital investment company had already been completed in the first half of 2015. Its core content is to use COFCO International as the investment platform, and while introducing various types of outside capital, through methods and measures such as realizing an internationalized whole-industry chain and spinning off and listing business segments, to push COFCO Group to become a state-owned capital investment company with grain, oil and food as its core main business as soon as possible.
Overall Listing
After acquiring Nidera and Noble Agri last year, COFCO Group Chairman Ning Gaoning once publicly stated that according to the plan, COFCO would complete the integration of domestic and overseas assets in 2017 and realize the overall listing of its main businesses in 2019.
The integration of domestic and overseas assets mentioned by Ning Gaoning mainly refers to integrating COFCO's domestic grain, oil and sugar assets with the assets of Nidera and Noble Agri abroad; the so-called overall listing means using COFCO International as the platform to transform COFCO Group, which integrates domestic and overseas assets, into a publicly listed “global agricultural company.”
Including controlling and non-controlling stakes, COFCO Group currently has a total of 11 listed companies under its umbrella, with business scope involving planting and breeding, agricultural product collection, storage and logistics, grain, oil and food trade, agricultural product processing, feed processing, slaughtering and meat processing, real estate, hotels and other aspects. In the pilot for a state-owned capital investment company, one important task for COFCO is first to split and consolidate the existing listed companies according to different business segments. Only after completing the spin-off and listing of business segments can it begin the pace of the group's overall listing.
In terms of spinning off business segments for listing and introducing professional managers, COFCO's target direction is also very clear. “Spin-off listing” means taking COFCO's existing 11 listed companies and, according to different business segments, adopting the method of “merging similar items” to carry out restructuring and listing; introducing professional managers focuses on the international level, recruiting internationalized management talent. For example, in May this year COFCO appointed Matt Jansen, chief executive officer of COFCO Noble Agri, who previously served as a senior vice president at the US ADM Group.
In terms of equity diversification, COFCO Group has already carried out mixed ownership reform attempts in enterprises under its umbrella such as COFCO Meat Investment Co., Ltd. (referred to as “COFCO Meat”) and Womai.com, and won widespread praise inside and outside the industry. Last year COFCO and China Investment Corporation, which manages USD 500 billion in assets, jointly established COFCO International Holdings Co., Ltd. (referred to as “COFCO International”), and successfully acquired controlling stakes in Netherlands-based Nidera and Hong Kong, China-based Noble Agri, which further won affirmation from high-level officials of the State Council.
COFCO Group's positioning for the future is a “global agricultural major company.” In building an internationalized whole-industry chain, COFCO already possesses relatively complete large-scale logistics facilities in South America, and its next main target for market expansion is the United States.
The COFCO management insider analyzed to Economic Observer that next, COFCO will roughly divide the 11 listed enterprises by categories such as grain and oil, food, real estate and finance, and adopt the method of “merging similar items” to split and consolidate them. If the group's overall listing plan is added, this will be a very massive project.