Exclusive: China's COFCO in talks to buy Noble's agribusiness arm - sources

KUALA LUMPUR/HONG KONG Tue Mar 4, 2014 8:17am EST

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KUALA LUMPUR/HONG KONG (Reuters) - China's biggest grains trader COFCO Corp is in talks to buy Noble Group Ltd's agribusiness arm in a deal that would value the division at around $1 billion, people familiar with the matter said.

Buying into the Noble unit would help China develop a powerful agricultural trading house, an entity the country has lacked. Chinese trading firm Unipec is already one of the world's biggest crude oil buyers.

State-backed COFCO, which last week agreed to buy a 51-percent stake in Dutch grain trader Nidera, is conducting due diligence on the Noble unit, said the sources who declined to be identified because the matter is not yet public.

The precise stage of the talks was not clear, the people said, cautioning that a deal may or may not materialize for the unit which trades and processes grains. The final structure of the deal is still under discussions.

Noble shares jumped as much as 8.6 percent to S$1.075, the highest since January 2 after the Reuters story, adding around $450 million in market value. The benchmark Straits Times Index .FTSTI was 0.

Noble Group said in a statement that it was currently engaged in discussions with a consortium over a potential joint venture around its agriculture business, but no binding arrangements had yet been entered into. The Noble statement did not identify COFCO as part of the consortium.

Noble's grains and oilseeds operations focus on South America, Europe and Asia. It operates three oil seed processing factories in Asia, and supplies grains, oilseeds, vegetable oil and by-products throughout the region from Singapore.

A COFCO spokesman said he was not aware of talks with Noble.

WAVE OF CONSOLIDATION

An acquisition push by state-run COFCO comes after a wave of consolidation in the global agribusiness sector - including deals by Japanese firms to snap up rivals - that has largely passed China by.

The Nidera acquisition is COFCO's first major overseas purchase of a trading house and signals China's ambition to create a global trading company along the lines of Japanese, European and U.S. trading giants.

Last year, Japanese trading house Marubeni Corp (8002.T) agreed to pay $5.6 billion for U.S. grain merchant Gavilon while Glencore (GLEN.L) bought Viterra Inc, Canada's largest grain handler, for $6 billion in 2012.

"The consolidation in the industry has already taken place and it seems like they (COFCO) are trying to get hold of what is available," said an industry analyst in Australia.

Noble is one of Asia's so-called NOW commodity traders, along with Olam International Ltd and Wilmar International Ltd, challenging the ABCD majors - Archer Daniels Midland (ADM.N), Bunge (BG.N), Cargill CARG.UL and (Louis) Dreyfus LOUDR.UL - which dominate grain flows.

Noble, which is 14-percent-owned by sovereign wealth fund China Investment Corp.CIC.UL, trades sugar, coffee and raw materials like iron ore. Its agricultural division is the smallest and generated $15.5 billion revenue last fiscal year, accounting for about 16 percent of the total.

Noble's net profit tumbled 48 percent last fiscal year after its agricultural business swung to an operating loss. But the performance of the unit has improved over the last year.

In 2011, the Hong Kong-based trading house considered listing its agribusiness in an IPO which could have raised $700 million, sources said at the time, but the plan was shelved.

FOOD SECURITY

China is looking for new sources of supplies to ensure food security and meet a growing demand for high-protein products fuelled by rising incomes.

Asked about its M&A intentions previously, COFCO has said that a key strategy is to increase supply sources worldwide to boost food security and also focus on firms that have the network to help export finished and processed food products.

Last week's Nidera deal gives the world's most populous country direct access to South American grain and oilseeds.

"Food security is a number one priority for China and you will see COFCO aggressively pursuing more acquisitions," one person familiar with COFCO's thinking said.

COFCO has already diversified into downstream activities such as milling, soybean crushing and pig breeding. In recent years, it has also expanded into branded foodstuffs, setting up an online platform to sell packaged foods to China's safety conscious food consumers, and marketing high-end products like its Great Wall wine brand, chocolate and edible oils.

"The Chinese are well aware that they have a supply chain problem," said Charles Sernatinger, head of grains at ED & F Man Capital Markets. "They are going to be importers of large amounts of agriculture commodities for the foreseeable future."

(Additional reporting by Eveline Danubrata in SINGAPORE and Dominique Patton and Shuping Niu in BEIJING; Editing by Amran Abocar, Ed Davies and Jane Merriman)

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