[ET Net News Agency, 3 December 2019] Moody's Investors Service said that the proposed
privatization of China Agri Industries Holdings Ltd (00606) by its parent, COFCO (Hong
Kong) Limited (COFCO HK), will increase COFCO HK's leverage, but have no material impact
on its A3 issuer rating and stable outlook.
On 28 November 2019, China Agri announced that COFCO HK, which had a 59.88% stake in
China Agri on the day of the announcement, will privatize the company by investing up to
HKD9.2 billion. The transaction is subject to shareholders' approval and if completed
successfully, COFCO HK will ultimately own 100% of China Agri and China Agri's shares will
be withdrawn from the Hong Kong Stock Exchange, making it a private company.
The transaction, if completed, will likely increase COFCO HK's leverage, as measured by
adjusted net debt/EBITDA. Assuming that the transaction is fully funded by debt, Moody's
expects COFCO HK's leverage will be around 5.0x at the end of 2020, which is slightly
higher than the 4.5x-4.7x expected by Moody's before the transaction's announcement.
However, such slightly increased leverage remains appropriate for its current rating.
COFCO HK is embarking on this privatization because China Agri's stock price has been
weakening, impeding its ability to raise capital in the equity markets. The
underperformance of China Agri's share price has been driven by slowing global economic
growth, as well as heightening trade tensions and geopolitical risks.
Moody's expects the transaction to give COFCO HK stronger control over China Agri's
strategic decisions and operations, and enhance COFCO HK's comprehensive consolidation and
integration of China Agri's operations, giving COFCO HK more flexibility and higher
efficiency in supporting the long-term business development of China Agri.
In addition, Moody's expects that the transaction will improve COFCO HK's management and
operating efficiency by eliminating overlapping management functions and reduce costs.
China Agri is an important subsidiary for COFCO HK, accounting for 30% and 19% of COFCO
HK's total revenues and assets in 2018.
COFCO (Hong Kong) Limited is a wholly-owned offshore subsidiary of COFCO Group. The
company operates in agriculture commodity trading and processing, food products, packaging
and property.
COFCO Group is 100% owned by the State Assets Supervision and Administrative Commission
of the State Council. COFCO Group is the largest supplier of agricultural and food
products in the country by sales revenue, serving as one of China's main importing and
exporting channels for bulk agricultural products. (KL)