COFCO Merger to Create Trading Behemoth Prior to IPO
China’s largest food company COFCO is positioning to merge its international trading arm, COFCO International, with a number of domestic Chinese businesses, creating a behemoth agricultural trader prior to an IPO (likely to occur in Shanghai) of the new entity.
State-owned COFCO owns a 60 percent stake in COFCO International with the remaining owned by five partners: Temasek, Standard Chartered Bank, China Investment Corporation, Hopu Investment Management, and the International Finance Corporation of the World Bank.
This merger plan follows a posting of record profits by COFCO International, with unaudited pre-tax profits topping US$350 million in 2020 resulting from ag market volatility. And an IPO, which admittedly will depend on investor enthusiasm and commodity prices, could place COFCO International’s five minor stakeholders in a position to exit.
Such a merger will gather COFCO International’s trading unit and other domestic businesses under a single name, resulting in a global giant with assets across multiple continents, from soy exporters in Brazil to processors in China, that will present significant competition to the four ABCD traders: Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus who have collectively dominated global commodity trading for decades.
COFCO has been floating the possibility of an IPO for years. As far back as 2014, COFCO signaled intentions of an IPO, stating that such a move would include the trading and agro assets of Nobel Group and Nidera, which were acquired by COFCO earlier that year.
Indeed, in 2016, former COFCO CEO Matt Jansen once again echoed intentions of going public, stating the company was focused on becoming an “investment grade” operation in search of returns prior to going public in the medium term.
Today, these intentions become manifest with Bloomberg reporting that COFCO has hired multiple banks to advise on the merger that is expected to be completed later this year, and the IPO, which is to follow in late 2021 or early 2022 and could value the company in excess of US$5 billion.